Faculty & Research

Michael Gibbs

Clinical Professor of Economics; Faculty Director of the Executive MBA Program

Phone :
1-773-834-4351
Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Michael Gibbs studies the economics of human resources and organizational design. He is co-author (with Edward Lazear) of the leading textbook in his field, Personnel Economics in Practice. The 3rd edition and a Chinese translation will be published in 2015. Gibbs's research has been published in the Quarterly Journal of Economics, Industrial & Labor Relations Review, Accounting Review, and other journals. Professor Gibbs is a Research Fellow of the Center for the Study of Labor (IZA), the Institute for Compensation Studies, and is on the board of Huy Vietnam.

In 2007 Gibbs received the Notable Contribution to Management Accounting Literature from the American Accounting Association. He has received two Hillel Einhorn Excellence in Teaching Awards.

Gibbs earned an AB, AM and PhD in economics all from the University of Chicago.

 

2013 - 2014 Course Schedule

Number Name Quarter
33801 Microeconomics 2014 (Summer)
33832 Organizations and Incentives 2014 (Winter)
42818 Governance 2013 (Fall)
42818 Governance 2014 (Summer)

2014 - 2015 Course Schedule

Number Name Quarter
33832 Organizations and Incentives 2015 (Winter)

Other Interests

Food, travel, computers.

 

Research Activities

Personnel economics.

“Design & Implementation of Pay for Performance,” Oxford Handbook of Managerial Economics (2013).

With A. Levenson & C. Zoghi, “Why are Jobs Designed the Way They Are?,” Research in Labor Economics (2010).

With K. Merchant, W. Van der Stede & M. Vargus, “Performance Measure Properties and Incentive Plan Design,” Industrial Relations (2009).

With W. Hendricks, “Do Formal Salary Systems Really Matter?” Industrial & Labor Relations Review (2004).

With K. Merchant, W. Van der Stede & M. Vargus, “Determinants and Effects of Subjectivity in Incentives,” The Accounting Review (2004).

With G. Baker & B. Holmstrom, “The Internal Economics of the Firm: Evidence from Personnel Data,” Quarterly Journal of Economics (1994).

With G. Baker & B. Holmstrom, “The Wage Policy of a Firm,” Quarterly Journal of Economics (1994).

For a listing of research publications please visit ’s university library listing page.

REVISION: A Field Experiment in Motivating Employee Ideas
Date Posted: Apr  10, 2014
We study the effects of a field experiment designed to motivate employee ideas, at a large technology company. Employees were encouraged to submit ideas on process and product improvements via an online system. In the experiment, the company randomized 19 account teams into treatment and control groups. Employees in treatment teams received rewards if their ideas were approved. Nothing changed for employees in control teams. Our main finding is that rewards substantially increased the quality of ideas submitted. Further, rewards increased participation in the suggestion system, but decreased the number of ideas per participating employee, with zero net effect on the total quantity of ideas. The broader participation base persisted even after the reward was discontinued, suggesting habituation. We find no evidence for motivational crowding out. Our findings suggest that rewards can improve innovation and creativity, and that there may be a tradeoff between the quantity and quality of ...

REVISION: Design and Implementation of Pay for Performance
Date Posted: Feb  08, 2012
A large, mature and robust literature now provides a useful framework for designing and implementing pay for performance. Several excellent surveys of this research are available. The purpose of this chapter is not to provide yet another survey, but to use the lessons of the economic literature on incentives to discuss how to design and implement pay for performance in practice.

New: Optimizing Incentive Plan Design: A Case Study
Date Posted: Sep  12, 2011
We study effects of a firm’s attempt to optimize an existing incentive scheme to increase sales growth for direct store delivery workers. Before optimization workers reported Ratchet Effects that lowered productivity. The altered incentive plan offered higher compensation for increased sales relative to a sales growth target, and lower compensation for failing to meet the target. We gathered data on performance and attitudes at pilot and control sites before and after the change. Relative to co

New: Performance Measure Properties and Incentive System Design
Date Posted: Jun  16, 2009
We analyze effects of performance measure properties (controllable and uncontrollable risk, distortion, and manipulation) on incentive plan design, using data from auto dealership manager incentive systems. Dealerships put the most weight on measures that are "better" with respect to these properties. Additional measures are more likely to be used for a second or third bonus if they can mitigate distortion or manipulation in the first performance measure. Implicit incentives are used to provide

REVISION: Globalization, Superstars, and the Importance of Reputation: Theory & Evidence from the Wine Industr
Date Posted: Mar  25, 2009
We develop a simple model of the effects of reputation on wine prices. An increasing fraction of consumers who are "naive" (less well informed about wine quality) results in a stronger sensitivity of wine prices to ratings of quality. We then use data on prices and Robert Parker's ratings of wines, to show that prices have become more related to Parker ratings over time. In addition, we find that a change in Parker rating has a stronger effect on price, the stronger is the wine's reputation.

New: Returns to Skills and Personnel Management: U.S. Department of Defense Scientists and Engineers
Date Posted: Mar  30, 2007
Personnel records are used to examine compensation, recruitment, and retention of a group of highly skilled workers: civilian scientists and engineers in U.S. Department of Defense laboratories. In contrast to those of the private sector, returns to skills were largely flat for this group from 1982 to 1996. Despite this, quality and performance of recruits relative to earlier cohorts, and of those retained relative to those who left, remained stable. One explanation is the importance of defense

New: Mergers of Equals and Unequals
Date Posted: Nov  26, 2006
We examine the dynamics of post-merger organizational integration. Our basic question is whether there is evidence of conflict between employees from the two merging firms. Such conflict can arise for several reasons, including firm-specific human capital, corporate culture, power, or favoritism. We examine this issue using a sample of Danish mergers. Controlling for other effects, employees from the acquirer fare better than employees from the acquired firm, suggesting that they have greater po

REVISION: Determinants and Effects of Subjectivity in Incentives
Date Posted: Mar  28, 2006
This study examines two questions: when do firms make greater use of subjectivity in awarding bonuses, and what are the effects of subjectivity on employee pay satisfaction and firm performance? We examine these questions using data from a sample of 526 department managers in 250 car dealerships. First, the findings suggest that subjective bonuses are used to complement perceived weaknesses in quantitative performance measures and to provide employees insurance against downside risk in their pay

Returns to Skills & Personnel Management: U.S. DOD Scientists and Engineers
Date Posted: Apr  07, 2005
Personnel records are used to examine compensation, recruitment, and retention of a group of very highly skilled workers: civilian scientists and engineers in U.S. Department of Defense laboratories. In contrast to the private sector, returns to skills were largely flat for this group from 1982-1996. Despite this, quality and performance of recruits relative to earlier cohorts, and of those retained relative to those who left, remained stable. One explanation is the importance of defense-industr

Why Are Jobs Designed the Way They Are?
Date Posted: Mar  14, 2005
In this paper we study job design. Will an organization plan precisely how the job is to be done ex ante, or ask workers to determine the process as they go? We first model this decision and predict complementarity between these job attributes: multitasking, discretion, skills, and interdependence of tasks. We argue that characteristics of the firm and industry (e.g., product and technology, organizational change) can explain observed patterns and trends in job design. We then use novel data on

Performance Measure Properties and Incentives
Date Posted: Oct  25, 2004
We examine the effects of performance measure properties on incentive system design, using data on incentive contracts for auto dealership managers. The data include information on five properties: two indicators of risk; two indicators of distortion; and one indicator of potential manipulation. We find that these properties have important effects on incentive system design. First, firms appear to choose the "best" performance measure available along these dimensions, and use it for the most imp

Do Formal Salary Systems Really Matter?
Date Posted: Oct  03, 2004
Drawing on a single large U.S. corporation's personnel records for the years 1989-93, the authors analyze an example of the kind of formal salary system used by most large firms. They find that this firm's practices were consistent with most of the important conclusions of prior empirical research on internal labor markets. The system was highly centralized, covering salary levels, salary ranges, raises, and bonuses. Supervisors had little discretion over pay other than through subjective per

Causes and Effects of Subjectivity in Incentives
Date Posted: Feb  28, 2002
This study empirically examines two basic questions. First, where and why do firms make greater or lesser use of subjectivity in the performance evaluations that lead to annual bonuses? Second, what are the effects of greater or lesser use of subjectivity on employee pay satisfaction? We examine these questions using data collected from a sample of 526 department managers in 250 automobile dealerships. Our findings suggest that subjective bonuses are used to complement perceived weaknesses in bo

The Economic Approach to Personnel Research
Date Posted: Jul  25, 2001
We compare the economic approach to research on personnel and organizational design to approaches from behavioral disciplines. Instead of a survey of the field, our emphasis is on topics which are important in organizational research outside of economics, yet have been little emphasized by economics. We contend that many of these topics hold great promise for insights from the economic approach. In some cases we sketch ways in which economists can approach these topics. We also briefly discuss e

Incentive Compensation in a Corporate Hierarchy
Date Posted: Feb  13, 2001
A theoretical and empirical analysis of within-job and promotion-based incentives for middle managers is presented, using personnel data from a firm. Within-job incentives are stronger than implied by previous studies. Evidence is provided that promotions sort employees by ability, and also generate incentives. Promotions are associated with large increases in lifetime earnings, as long as performance is sustained in the future. There is little evidence that the firm trades-off within-job and pr

The Economic Approach to Personnel Research
Date Posted: Oct  03, 2000
We compare the economic approach to research on personnel and organizational design to approaches from behavioral disciplines. Instead of a survey of the field, our emphasis is on topics which are important in organizational research outside of economics, yet have been little emphasized by economics. We contend that many of these topics hold great promise for insights from the economic approach. In some cases we sketch ways in which economists can approach these topics. We also briefly discuss e

Are Administrative Pay Systems a Veil? Evidence from Within-firm Data
Date Posted: Jul  10, 1997
Using detailed personnel data from a firm, we analyze the real effects of the kind of compensation system that is used in many large firms--the Hay system. Such compensation systems are highly centralized and bureaucratic, with little ability for managers to adjust incentives for different job designs, individuals, and circumstances. We find that this system does appear to have real effects, particularly for those who are at the maximum salary in their allowable range. Such employees tend to hav