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Gibbons, Robert. 1998. "Incentives in Organizations", Waldman M. 2013, Theory and Evidence in Internal Labour Markets, in Gibbons R. and Roberts J. (eds), Handbook of Organizational

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Table of contents
Introduction 3
A. An initial, not-technical summary of the main issues, ideas and results 4
B. General characteristics of the study (Gibbons, Robert. 1998. "Incentives in Organizations") 7
B.1.1 Formal presentation 7
B.1.2 Formal presentation of the main results 10
B 2 Analyse the article «Waldman M. 2013, Theory and Evidence in Internal Labour Markets, in Gibbons R. and Roberts J.» 16
B 2.1 Formal presentation 16
B 2.2 Formal presentation of the main results 16
C. Links to further contributions to the same topic 16
Conclusion 25
Bibliography 27

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On the other hand, detailed empirical analysis (eg, Ichniowski et al. 1997) suggests that widespread use of group decision-making (ie, decentralization) is central to productivity gains associated with innovative working methods49.Finally, a topic that deserves more attention in future research is delay. In closely related empirical literature, it has been shown that over time the hierarchy has flattened or, equivalently, there has been a delay - that is, in a typical firm there are fewer layers between the CEO and the bottom of the organization, and the average number of workers reporting to each manager has increased. (for an earlier discussion see Osterman 1996; for systematic empirical evidence see Rajan and Wulf 2006; Guadalupe and Wulf 2010). There are several possible explanations for this phenomenon, for example, improved information technology reduces the need for middle managers, as originally argued by Leavitt and Whistler (1958). I believe that if decentralized decision making is a central aspect of innovative working methods, it is possible that one of the reasons for the delay is the adoption of these methods and, as a consequence, decentralized decision making, which potentially requires fewer middle managers. Empirical work on this possibility will be of considerable interest.According to the author of the study, the close collaboration between theory and empirical evidence can be used to gain a deeper understanding of the driving forces behind the functioning of domestic labour markets.So, based on the author's research, it can be concluded that the literature on domestic labour markets has grown to such an extent that for some of its sections there is now a very healthy two-way interaction between theory and empirical work. On the one hand, numerous theoretical articles try to explain empirical phenomena and, in particular, the patterns found in the data. On the other hand, numerous empirical articles try to test the most promising theories. In turn, the combination of theoretical and empirical evidence can significantly improve our understanding of various problems in domestic labor markets.In this review, the author has focused on this two-way interaction between theory and empirical work. Specifically, the author explored three topics in the extensive literature on domestic labour markets to demonstrate the benefits of a close interaction between theory and evidence and draw some conclusions in each case about which theoretical approaches appear most promising. The first topic addressed by the author is the dynamics of wages and promotions in domestic labour markets. In this regard, various different theoretical approaches have been put forward. After examining various theories and relevant empirical literature, the author concluded that a model combining symmetric learning, human capital accumulation and job assignment - as in Gibbons and Waldman 1999b, 2006 - is the most promising for explaining various empirical results.But other theoretical approaches, such as tournament theory and asymmetric learning, also seem to be important for fully understanding what drives the dynamics of wages and promotions within firms.The second literature on which the author focuses concerns the growing use by firms of innovative human resource management practices. After examining the empirical and theoretical literature, the author concluded that - as argued by numerous authors, including Milgrom and Roberts (1990, 1995) and Holmström and Milgrom (1994) - complementarity is a driving force behind understanding the growing use of these practices. Less clear is the evidence as to which of the various theories advanced to explain the nature of these complementarities is most important. But the argument that the driving force is the desire to transfer decision making from managers to lower-level employees, because the best decisions are made by those with local knowledge, seems to be the argument that best fits the evidence.The third literature author reviewed deals with international differences in domestic labour markets, where much of this literature focuses on the differences between the United States and Japan. One of the implications here is that at least some of the historical differences between the United States and Japan are likely related to the later initial adoption of these practices and their gradual spread in the United States. However, some differences are likely to persist even after taking this factor into account, and author believe that the correct explanation for the remaining differences lies in the different incentives for decentralized decision-making in the two countries, as originally emphasized by Koike (1977, 1988) and Aoki (1986, 1988) and more recently Morita (2001, 2005).The author has shown how close collaboration between theory and empirical evidence can be used to achieve a deeper understanding of the driving forces behind the functioning of internal labour markets than can be achieved either by empirical evidence or theory taken in isolation. Hopefully, future work on pay dynamics and promotion, and on the use of innovative human resource practices, and research on other topics in domestic labour markets, will continue to seek the close two-way interaction between theory and empirical evidence as described. in this chapter.C. Links to further contributions to the same topicMany publications on the topic of agency conflicts are devoted to the compensation of managers, since appear to be the most obvious tool in resolving them. The study of this direction is widely disclosed in the study by K. Murphy, who gives a detailed description of the mechanism of how managers' remuneration works in practice. The works of K. Murphy, as well as the scientific research of other authors, focus on the study of compensation schemes for general directors (CEOs) as tools for resolving the agency conflict between managers and owners in the institutions of open joint stock companies.It should be noted that there are two views on how the agency problem and compensation schemes are interrelated. Among financiers, the dominant approach to the study of directors' compensation is to consider the terms of compensation to managers as a recipe for resolving the agency problem. This approach, also referred to as the optimal contract concept, involves the creation of remuneration schemes that can stimulate managers to maximize the value of the joint stock company. An article by M. Jensen and K. Murphy (1990) presents an empirical assessment of the sensitivity of compensation payments in relation to firm performance, designed to answer the question of the extent to which management compensation affects the growth of shareholder wealth. Researchers use a regression model (the method of least squares) to calculate the variation in company performance in relation to changes in CEO pay. The correlation coefficient reflects the sensitivity of compensation to the achieved financial results. The authors' calculations showed that for every 1,000 US dollars, there was an increase in remuneration of 3.25 US dollars. Subsequent studies in the field of this topic on large samples of companies from 1992 to 2006 focused not on compensation in general, but on changes in additional bonuses in the form of stocks or corporation options. For example, economists Hall and Liebman obtained the following results: in 95% of cases, the sensitivity of remuneration to performance affected changes in the value of existing options and shares(Liebman A.V., 2005). The key factor that ensured the development of this direction of economic thought was the phenomenon of an abrupt increase in compensation options and shares.The second approach to the study of compensation differs from the one described above in the nature of the relationship between the agency problem and the remuneration of the CEO of the corporation. The difference is that compensation payments are viewed not only as a potential tool for resolving an agency conflict, but also as part of the agency problem itself. Some researchers have noticed that certain characteristics of payment schemes to a greater extent reflect the conditions of management rent, rather than the formulation of effective incentives for work (Blanchard, Schleifer, 1994 29, Ermak, 1997 30). This approach sheds light on significant issues related to compensation schemes that were considered controversial by the advocates of the optimal contract model.Another area of ​​scientific thought in the field of the principal-agent problem is the interpretation of debt as an optimal contract. Among the best-known sources of this position are the works of Townsend, Diamond, Gale and Hillwig. In the model of the latter, it is assumed that the entrepreneur intends to implement a risky project, which cannot be divided into several less risky projects, without fully possessing the necessary and sufficient resources31. In such a situation, he implements the project together with the investor, as a result of which a conflict arises between the investor in the role of the principal and the entrepreneur in the role of the agent. At the same time, the agency problem lies in the investor's desire to maximize payments under the contract against the background of the opposite interest in increasing his own profit.Given the controversy of agency theory, especially with regard to financial ethics, it is often criticized. Thus, the economist Horrigan argues that the agency theory creates the danger of forming an idea of ​​financial relations as controversial and hostile, based on the clashes of interests of agents and principals, as eternal opponents32. Agency theory has also been criticized for its oversimplified assumptions that do not reflect the real business environment and empirical research that does not fully support its underlying principles. This stimulates economists to continue to study this area and not only make adjustments to the existing provisions of the theory, but also initiate a revision of key aspects(Hayes, Rachel, and Scott Schaefer, 1997).At the same time, in modern market conditions, wages, while remaining a significant share of the employee in the income they create, are correlated with the cost of labour. The need for wages in maintaining a decent standard of living for workers is obvious. Therefore, the price of labour includes not only the cost of subsistence, which is very important for meeting the minimum possible key needs of the employee and his family, but also the costs of meeting socio-cultural needs, maintaining the ability to work, obtaining basic and additional education(Higgs, Robert, 1973).Wages are the fundamental income for the majority of the able-bodied population. Therefore, an understanding of the economic nature of wages, the fundamental factors affecting its transformation, as well as the justification of the procedures carried out in order to increase the real incomes of the bulk of the population, plays a huge role.Effective human resource management is quite acceptable when using wages based on the principles of a comprehensive accounting contribution and the level of professional competence (knowledge, skills and abilities) that workers have actually mastered.The system of motivation and remuneration should be fair to employees, competitive with other organizations, while being well managed and ensuring the development of the employee.It should be noted that in order to create a system of material incentives, it is necessary to take into account not only the specifics of one's production, the stage of its development and the purpose of activity, but also many external factors, and such a system must be lively, that is, it must change in conjunction with the requirements of the time. In this regard, the problem of finding a solution to the set tasks is urgent.To increase the maximum efficiency of the process of material incentives for labour, it is very important to systematically improve the entire remuneration system.This issue can be resolved by creating a mechanism in the organization for the formation and distribution of the wage fund, which will stimulate an increase in the contribution of almost every employee to the final results of activities.Formation of the wage fund is supposed to include: - basic wages;- allowances and surcharges of a compensatory nature;- stimulating cash rewards.The economic needs of the employer's interest include:- obtaining the maximum possible economic effect from the hiring of labour;- negating the costs of wages of hired personnel;- minimizing damage from erroneous management decisions, from incorrect actions,theft, from loss of working time, from the release of poor-quality products, etc.;- minimization of damage from social, personal and labour and conflicts;- the mobility of personnel, the possibility of personnel for a quick restructuring of production for a new one,best-selling products and the provision of the latest types;- minimization of damage from excess staff turnover;- an invitation to work the most talented and promising young professionals whocan provide a significant competitive advantage in the market. The economic interests of the employee are:- availability of a source for life support;- receiving a well-deserved, not lower than market, remuneration for their labour, which is able to providedevelopment and reproduction;- absence of excessive labour intensity;- the presence of comfortable or at least acceptable working conditions, and in the case of difficult andthose carrying danger - material compensation for such conditions;- the presence of creativity, the absence of monotony and monotony in the productionprocess;- improving your professional skills, and as a result, a further increase in paylabour;- the possibility of receiving social benefits;- opportunity for career growth.The interests of company management and employees may or may not coincide. Match upeconomic interests in terms of obtaining the maximum economic effect from the very activity of the enterprise. To reach a reasonable compromise, a mechanism is needed to reconcile the interests of employers and employees.ConclusionBased on the results of the study, the following most effective corporate governance mechanisms can be identified, which can and should be used to solve the agency problem:1) creation of an authorized supervisory body - the board of directors of the company;2) ensuring the transparency and usefulness of the disclosure of financial and non-financial information in corporate reporting;3) application of a comprehensive system of motivation and remuneration of managers, including various short-term and long-term incentives (including bonuses and privileges for top managers).However, it should be emphasized that each of the above mechanisms has its own difficulties and disadvantages. The main problem lies in choosing the optimal balance of mechanisms and incentives so that their application would be economically viable. By themselves, for example, the payment of bonuses and bonuses does not prevent the selfish or opportunistic behaviour of managers, therefore, corporate governance mechanisms should provide for incentives only taking into account the long-term dynamics of the company's performance, and only if the strategic goals set by the owners are met.Nevertheless, the mechanisms we have chosen, taking into account the international and domestic practice of corporate governance, will best contribute to solving the agency problem and ensure long-term sustainable growth of the company's value.At the end of my article, Robert Gibbons writes: To summarize, I think the economic literature on incentives in organizations made significant progress in the 1990s, opening up several new areas of research that go beyond the classic emphasis on the trade-off between insurance and incentives. But I think that much of the best economic research on this subject is yet to come, and that it will demonstrate stronger connections both with the broader literature on organizational economics and with other disciplines that study organizations."The article (Waldman M. 2013, Theory and Evidence in Internal Labour Markets, in Gibbons R. and Roberts J. (eds), Handbook of Organizational Economics, Princeton University Press, Princeton, chp. 13;) examines the relationship between the dynamics of wages and promotion. Empirical and theoretical research in a given direction is also analysed (Michael Waldman, 2012.).Based on the analysis of the materials of the article, it can be concluded that in modern society, a person's life develops throughout his life, moves forward, reaches new goals, thus, we can say that life is a process of constantly overcoming new boundaries, achieving better results, self-development and personal growth. In this process, the fundamental role is played by the question of understanding all the actions and deeds that a person commits. What influences human activity and behaviour? Why is he doing anything at all? What motivates him, motivates him? After all, any action and inaction always have a motive.BibliographyLiebman A.V. Theoretical aspects of the agency problem in a corporation / A.V. Liebman // Bulletin of St. Petersburg State University. Ser. 8. - 2005. - No. 8. - S. 123-140.Van Horn James K. Fundamentals of Financial Management, 12th Edition / James K. Van Horn, John M. Malkovich, Jr. - M.: OOO "I.D. Williams ", 2008. - 1232 p.Gibbons, Robert, '' Taking Coase Seriously. '' Administrative Science Quarterly, forthcoming, 1998.Gibbons, Robert, and Michael Waldman, '' Careers in Organizations: Theory and Evidence. '' In Ashenfelter, O., and D. Card, eds., Handbook of Labour Eco #mics, Volumes III and IV. New York: No. rth Holland, 1998.Gibbons, Robert. 1998. "Incentives in Organizations." Journal of Eco #mic Perspectives, 12 (4): 115-132. // doi: 10.1257 / jep.12.4.115Grossman, Sanford, and Oliver Hart, '' The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Ownership, '' Journal of Political Eco #my, 1986, 94, 481-510.Hayes, Rachel, and Scott Schaefer, '' Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance. '' Unpublished manuscript, Kellogg Graduate School of Management, No. 5 western University, 1997.Higgs, Robert, '' Race, Tenure, and Resource Allocation in Southern Agriculture, 1910, '' Journal of Eco # mic History, 1973, 33, 149–69.Holmstrom, Bengt, “Managerial Incentive Problems — A Dynamic Perspective.” In Essays in Economics and Management in Honr of Lars Wahlbeck. Helsinki: Swedish School of Eco # mics, 1982.Michael Waldman, 2012. "Theory and Evidence in Internal Labour Markets," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics, Princeton University Press.


Bibliography
1) Liebman A.V. Theoretical aspects of the agency problem in a corporation / A.V. Liebman // Bulletin of St. Petersburg State University. Ser. 8. - 2005. - No. 8. - S. 123-140.
2) Van Horn James K. Fundamentals of Financial Management, 12th Edition / James K. Van Horn, John M. Malkovich, Jr. - M.: OOO "I.D. Williams ", 2008. - 1232 p.
3) Gibbons, Robert, '' Taking Coase Seriously. '' Administrative Science Quarterly, forthcoming, 1998.
4) Gibbons, Robert, and Michael Waldman, '' Careers in Organizations: Theory and Evidence. '' In Ashenfelter, O., and D. Card, eds., Handbook of Labour Eco #mics, Volumes III and IV. New York: No. rth Holland, 1998.
5) Gibbons, Robert. 1998. "Incentives in Organizations." Journal of Eco #mic Perspectives, 12 (4): 115-132. // doi: 10.1257 / jep.12.4.115
6) Grossman, Sanford, and Oliver Hart, '' The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Ownership, '' Journal of Political Eco #my, 1986, 94, 481-510.
7) Hayes, Rachel, and Scott Schaefer, '' Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance. '' Unpublished manuscript, Kellogg Graduate School of Management, No. 5 western University, 1997.
8) Higgs, Robert, '' Race, Tenure, and Resource Allocation in Southern Agriculture, 1910, '' Journal of Eco # mic History, 1973, 33, 149–69.
9) Holmstrom, Bengt, “Managerial Incentive Problems — A Dynamic Perspective.” In Essays in Economics and Management in Honr of Lars Wahlbeck. Helsinki: Swedish School of Eco # mics, 1982.
10) Michael Waldman, 2012. "Theory and Evidence in Internal Labour Markets," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics, Princeton University Press.

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