Competitive careers as a way to mediocracy

I show that in competitive careers based on individual performance the least productive individuals may have the highest probabilities to be promoted to top positions. These individuals have the lowest fall-back positions and, hence, the highest incentives to succeed in career contests. This detrimental incentive effect exists irrespective of whether effort and talent are substitutes or complements in the underlying contest-success function. However, in case of complements the incentive effect can be outweighed by a productivity effect that favors high effort choices by the more talented individuals. Switching from wages-attached-to-jobs to pay-for-performance at top career positions can be a solution to the mediocracy problem.

► I show that the least productive individuals may be most likely promoted to the top. ► These individuals have the highest incentives to succeed in career contests. ► Pay-for-performance at top positions can be a solution to this problem.