Controlling and Motivating the Workforce: Evidence from the Banking Industry in the Late Nineteenth and Early Twentieth Centuries

Large banks have a considerable advantage over their smaller rivals because they are better able to diversify their portfolios. However, to achieve this advantage they must overcome agency problems associated with delegating decision making to non-owner employees. This paper uses evidence from the Union Bank of Australia to examine mechanisms used to monitor and motivate workers. Monitoring took the form of rigorous screening, beginning with the hiring process and continuing with frequent performance evaluations. Workers were also given strict rules of behaviour and incentives to supply effort in the form of seniority-based wages, performance-based promotions, and a generous pension plan.