In this paper, we investigate the influence of the education of managers, which we hypothesise to be a signal of quality, on the adoption of variable pay (VP) schemes by Italian firms. We estimate the extent to which differences in the diffusion of VP between Italian firms reflect differences in the quality of managers. Our estimates, which we obtained by taking both endogeneity and unobserved heterogeneity into account, validate our hypotheses regarding the direct positive association of managers’ education with the adoption of VP schemes. Furthermore, we ascertain the role of managers’ education by examining its influence on the choice between different types of VP bonuses at the individual, team, and establishment levels. Our results suggest that highly educated manages are more likely to use team and individual forms of VP schemes.
Financed by the National Centre for Research and Development under grant No. SP/I/1/77065/10 by the strategic scientific research and experimental development program:
SYNAT - “Interdisciplinary System for Interactive Scientific and Scientific-Technical Information”.