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Redesigning Teams and Incentives: A Real Effort Experiment with Managers of a Merged Company

After a merger, company officials face the challenge of making compensation schemes uniform and of redesigning teams with managers originating from companies with different incentives and working habits. In this paper, we offer a new way to investigate the relationship between executive pay and performance, after a merger, that allows us to dissociate the respective influence of shifts occurring both in compensation incentives and in team composition. The results of a real effort experiment conducted with managers within a large pharmaceutical company show that not only changes in compensation incentives affect performance but also that both managers' past compensation schemes and company cultures matter for cooperation. The efficiency of a new compensation package is conditional on the reshuffling of teams and on the influence of the past of incentives within the new teams
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