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

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dc.contributor.author Brynjolfsson, Erik
dc.contributor.author Wu, Lynn
dc.date.accessioned 2012-11-14T16:29:32Z
dc.date.available 2012-11-14T16:29:32Z
dc.date.issued 2012-03
dc.date.submitted 2010-10
dc.identifier.issn 0025-1909
dc.identifier.issn 1526-5501
dc.identifier.uri http://hdl.handle.net/1721.1/74643
dc.description.abstract We test for three-way complementarities among information technology (IT), performance pay, and human resource (HR) analytics practices. We develop a principal–agent 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. en_US
dc.description.sponsorship MIT Center for Digital Business en_US
dc.language.iso en_US
dc.publisher Institute for Operations Research and the Management Sciences (INFORMS) en_US
dc.relation.isversionof http://dx.doi.org/ 10.1287/mnsc.1110.1460 en_US
dc.rights Creative Commons Attribution-Noncommercial-Share Alike 3.0 en_US
dc.rights.uri http://creativecommons.org/licenses/by-nc-sa/3.0/ en_US
dc.source SSRN en_US
dc.title Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology en_US
dc.type Article en_US
dc.identifier.citation Aral, S., E. Brynjolfsson, and L. Wu. “Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology.” Management Science 58.5 (2012): 913–931. en_US
dc.contributor.department Sloan School of Management en_US
dc.contributor.mitauthor Brynjolfsson, Erik
dc.contributor.mitauthor Wu, Lynn
dc.relation.journal Management Science en_US
dc.identifier.mitlicense OPEN_ACCESS_POLICY en_US
dc.eprint.version Author's final manuscript en_US
dc.type.uri http://purl.org/eprint/type/JournalArticle en_US
eprint.status http://purl.org/eprint/status/PeerReviewed en_US
dspace.orderedauthors Aral, S.; Brynjolfsson, E.; Wu, L. en


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