Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology
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Brynjolfsson_Three-way complementarities.pdf
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293.31 KB
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Author(s)
Brynjolfsson, Erik
Wu, Lynn
Date Issued
March 2012
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
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.
Version
Author's final manuscript
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.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
https://doi.org/10.1287/mnsc.1110.1460
