The purpose of this thesis is to understand the opinions and potential effects of objective and subjective assessments of performance as a basis for performance pay for blue-collar workers. The study takes a qualitative approach to find out how and why four companies - Trelleborg Forsheda, Finnveden Powertrain, Isaberg Rapid and Parker Hannifin- work with salaries, incentive system and performance assessment the way they do. The concept of individual salary is central in this thesis, and individual salary is based on four criteria; capabilities, performance, work demand and formal competence. These can be divided in subjective or objective criteria. Individual salaries also contribute to salary divergence, which in many studies have indicated higher performance. Important to remember is that it has to exist a purpose to salary divergence and how salary is diverged in the company is related to the goals and strategy of the company. If the company chooses to have performance based salaries- which is salary divergence- another question arise; what is good performance? In organizations that have performance salaries, a group or an individual (often the middle manager) have to decide if a certain group of personnel performs good or bad. This can mainly be done in two different ways; objective performance assessment or subjective performance assessment. Objective performance assessment is based on numerical calculation of measures, which will form the basis for rewarding employees using a salary system that reward performance. Subjective performance measurements are based on judgment. Instead of relying on numerical calculations, one evaluates if the results reflect good or bad performance. For both methods it is essential that the personnel feels that the salaries are fair, and that the salary system is clear and easy to understand. Something else that is important to understand is that employer and employee have different views in what is a fair salary. Objective assessments are based on numerical calculations of measures, and one important property such measures have is that they don’t leave any room for excuses. Research indicate that performance pay has important motivation enhancing effects, but the profitability doesn’t always benefit from it. When monitoring costs are high, or product quality or long term thinking is required, hourly wages may be preferable. Tasks which are measured, will naturally be prioritized by the organization. This means that the choice of measures is very important. The amount of measures mustn’t be too high, and they have to be carefully considered. Subjective assessments are the opposite to objective ones. The advantages with subjective performance assessments are, among other things, that additional information which have surfaced during the period of measurements can be taken into consideration, errors in the measurement process can be corrected and unlucky circumstances can be dealt with. However, problems exist in unfair assessments, which are based on prejudice. Findings in this report shows that profitable companies have large differences in their salary systems. This is also supported by other research. The company Isaberg Rapid AB only uses objective criteria, focused on simplicity and group rewards. Finnveden Powertrain on the other hand, has a system focused on individuals and subjective assessments. Some conclusions could be drawn; one of the most important being that connections between the type of activities and the salary system is positive, and that salary systems have to be updated and revised continuously.

This dissertation consists of two essays concerning the determination of wages across areas. The first essay investigates the equilibrium relationship between wages and prices across labor markets. Of central interest is the extent to which workers receive higher wages to compensate for differences in the cost of living. According to the spatial equilibrium hypothesis, the utility of homogenous workers should be equal across labor markets. This implies that controlling for amenity differences across areas, the elasticity between wages and the general price level across areas should equal one, at least under certain conditions. We test this hypothesis and find that the predicted relationship holds when housing prices are measured by rents and the general price level is instrumented to account for measurement error. When housing prices are measured by housing values, however, the wage-price elasticity is significantly less than one, even using instrumental variables. Rents reflect the price paid for housing per unit of time and are arguably the superior measure. Thus, findings in this essay provide support for the full compensation hypothesis. These findings also have important implications for researchers estimating the implicit prices of amenities or ranking the quality of life across areas. The second essay uses a national level dataset and a spatial econometric framework to examine the effects of teacher unions and other school district characteristics on teacher salaries. The results confirm that salaries for both experienced and beginning teachers are positively affected by salaries in nearby districts. Investigations of the determinants of teacher salaries that ignore this spatial relationship are likely to be misspecified. We find that union activity increases salaries for experienced teachers by as much as 16-21 percent but increases salaries for beginning teachers by a considerably smaller amount. This result is consistent with predictions from a median voter model.

In this dissertation, I analyze the effects of competition in education markets. In my first essay, I analyze the effects of different concentration measures on school personnel salaries. I find evidence that principals have more bargaining power over their salaries than teachers in Washington that through rent-sharing, principals start getting positive returns from increasing concentration at lower levels of concentration than that of teachers. Moreover, I present that the pattern of teacher salaries versus concentration in Washington is similar to that in Texas, but the inflection point in Washington is at substantially lower levels of concentration-a finding which can be attributed to Washington's being a union state versus Texas's being a right-to-work-state. In my second essay, I examine the effects of various measures of competition on school district cost inefficiency in a stochastic frontier framework. My results show that cost frontier is U-shaped in Texas with large positive returns to the scale over a relatively big range and mild diseconomies of scale over an extended range. In addition, I find that school district cost inefficiency increases significantly when market concentration increases. Furthermore, I present the competitive effect/scale effect trade-off through a couple of simulation exercises. The findings from both of my studies show that the effects of competition are barely sensitive to measuring the competition with different sets of relevant competitors. On the other hand, sensitivity of the effects of competition to using different definitions of the education markets is significant. Yet, the range of these estimated effects is relatively small, and the sign and the significance of the effect of competition generally do not change when a meaningful definition of education markets is employed to measure concentration. Furthermore, I present that the concentration measures employed in my essays are endogenous. I control for the endogeneity with several instrumental variables including degrees of lagged educational outputs in the neighboring schools, lagged education market characteristics, and counts of streams. My results imply that the hypothesized effects of competition may be underestimated due to the endogeneity. While the plausibility of competitive effect's being underestimated bolsters the importance of the competitive effects I find, it also strengthens my criticism of using uni-dimensional concentration indices as indicators of competition in the education markets.

Previous research in organizational theory, labor market economics, and nonprofit studies are applied to churches and their clergy leadership in advancing a theory of clergy executive compensation. The data for this study come from the end of year reports from approximately 800 local churches of the North Georgia Annual Conference of the United Methodist Church for the years 2007-2008 and a survey administered in order to glean the personal characteristics of the clergy. The investigation employs a clergy compensation framework and finds that clergy salaries are influenced in part by personal characteristics, human capital, organizational elements, labor market factors, and clergy performance. The results regarding the role of credentialing in stratified labor markets have implications for policy. The present research adds to the nonprofit executive compensation literature by suggesting that denominational churches are analogous to nonprofit franchises and by empirically testing for "dual agency", labor market stratification, and managerial scope.

Previous research in organizational theory, labor market economics, and nonprofit studies are applied to churches and their clergy leadership in advancing a theory of clergy executive compensation. The data for this study come from the end of year reports from approximately 800 local churches of the North Georgia Annual Conference of the United Methodist Church for the years 2007-2008 and a survey administered in order to glean the personal characteristics of the clergy. The investigation employs a clergy compensation framework and finds that clergy salaries are influenced in part by personal characteristics, human capital, organizational elements, labor market factors, and clergy performance. The results regarding the role of credentialing in stratified labor markets have implications for policy. The present research adds to the nonprofit executive compensation literature by suggesting that denominational churches are analogous to nonprofit franchises and by empirically testing for "dual agency", labor market stratification, and managerial scope.

published_or_final_version / Politics and Public Administration / Master / Master of Public Administration

This thesis investigates how chief executive officer (CEO) equity incentives affect the remediation of material weaknesses (MWs) in internal control. First, we predict that the sensitivity of CEO stock and stock option portfolios to stock price (CEO price sensitivity or delta) has a positive impact on firm promptness in remedying MWs, because CEOs whose personal wealth is tied to stock price suffer losses from negative market reactions to the public disclosure of MWs. Second, we predict that the sensitivity of CEO stock option portfolio to stock-return volatility (CEO volatility sensitivity or vega) has a negative impact on firm promptness in remedying MWs, as firms with internal control weaknesses are associated with higher information and operating risks that manifest in stock return volatility. Our empirical results, based on a sample of firms disclosing MWs in internal control under the Sarbanes-Oxley Act (SOX) during November 15, 2003 and August 27, 2006, are consistent with the above predictions. We further provide evidence that an effective board of directors could mitigate the undesirable, negative impact of CEO volatility sensitivity on MWs remediation. We measure firms’ promptness in remedying MWs based on their subsequent internal control audit opinions (e.g., Ashbaugh-Skaife et al. 2008; Goh 2009); and CEO price (volatility) sensitivity as the dollar change in CEO stock and option portfolios (option portfolio) from a 1 percent change in stock price (Core and Guay 2002). This thesis is innovative with respect to the prediction and evidence of the opposing effects from CEO price and volatility sensitivities on internal control quality. This new evidence contributes to the literature that examines managerial incentives embedded in stock-based and option-based compensation plans in various economic contexts (e.g., Knopf et al. 2002; Coles et al. 2006; Low 2009; Armstrong et al. 2013). Our findings suggest that when stock constitutes a major part of CEO compensation, the mandatory disclosure requirement of SOX provides a channel for the stock market to discipline CEO. However, when options dominate CEO compensation, volatility sensitivity and the associated risk-taking incentive can cause CEOs to delay rectifying internal control deficiencies. These results have interesting policy implications for regulators and firms concerning mandatory disclosure and compensation design. Moreover, this thesis contributes to the broad literature on corporate governance by documenting an interaction between corporate governance and CEO incentives, namely that strong corporate governance mitigates the undesirable risking-taking incentive caused by CEO option holdings. Overall, this thesis deepens our understanding on mechanisms through which regulators, firm executives, and boards of directors strengthen internal control over financial reporting in the post-SOX era. / published_or_final_version / Business / Doctoral / Doctor of Philosophy

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