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Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology

Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology We test for three-way complementarities among information technology (IT), performance pay, and human resource (HR) analytics practices. We develop a principalagent model examining how these practices work together as an incentive system that produces a larger productivity premium when the practices are implemented in concert rather than separately. We assess our model by combining fine-grained data on human capital management (HCM) software adoption over 11 years with detailed survey data on incentive systems and HR analytics practices for 189 firms. We find that the adoption of HCM software is greatest in firms that have also adopted performance pay and HR analytics practices. Furthermore, HCM adoption is associated with a large productivity premium when it is implemented as a system of organizational incentives, but has less benefit when adopted in isolation. The system of three-way complements produces disproportionately greater benefits than pairwise interactions, highlighting the importance of including all three complements. Productivity increases significantly when the HCM systems go live but not when they are purchased, which can be years earlier. This helps rule out reverse causality as an explanation for our findings.This paper was accepted by Sandra Slaughter, information systems. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Science INFORMS

Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology

Management Science , Volume 58 (5): 19 – May 15, 2012
19 pages

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Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article
ISSN
0025-1909
eISSN
1526-5501
DOI
10.1287/mnsc.1110.1460
Publisher site
See Article on Publisher Site

Abstract

We test for three-way complementarities among information technology (IT), performance pay, and human resource (HR) analytics practices. We develop a principalagent model examining how these practices work together as an incentive system that produces a larger productivity premium when the practices are implemented in concert rather than separately. We assess our model by combining fine-grained data on human capital management (HCM) software adoption over 11 years with detailed survey data on incentive systems and HR analytics practices for 189 firms. We find that the adoption of HCM software is greatest in firms that have also adopted performance pay and HR analytics practices. Furthermore, HCM adoption is associated with a large productivity premium when it is implemented as a system of organizational incentives, but has less benefit when adopted in isolation. The system of three-way complements produces disproportionately greater benefits than pairwise interactions, highlighting the importance of including all three complements. Productivity increases significantly when the HCM systems go live but not when they are purchased, which can be years earlier. This helps rule out reverse causality as an explanation for our findings.This paper was accepted by Sandra Slaughter, information systems.

Journal

Management ScienceINFORMS

Published: May 15, 2012

Keywords: Keywords : incentive systems ; information technology ; performance pay ; human resource analytics ; complementarity ; enterprise systems ; ERP ; productivity ; production function ; principal–agent model

References