Advanced Search
MyIDEAS: Login

Relative Performance Compensation, Contests, and Dynamic Incentives

Contents:

Author Info

  • Pablo Casas-Arce

    ()
    (Department of Economics and Business, Universitat Pompeu Fabra, and Barcelona Graduate School of Economics and IESE, 08005 Barcelona, Spain)

  • F. Asís Martínez-Jerez

    ()
    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

Registered author(s):

    Abstract

    Contests (or tournaments) are pervasive in organizations. They help performance evaluation by eliminating common shocks affecting agents' performance. However, tournaments are less effective when participants have heterogeneous ability because participants may conclude that the ability gap is too large to be overcome by their effort. Our theoretical analysis shows that a similar loss of motivation arises when tournaments take place over multiple periods because interim performance acts in a way that is similar to heterogeneous ability. Analyzing the sales contests organized by a commodities company, we document that winning participants decrease their effort as their lead extends, whereas the effort of trailing participants fades only when the gap to a winning position is very large. We also show that, on average, when contests are introduced they induce a higher level of effort among participants, although the incentives weaken as the number of participants increases. Finally, we demonstrate that although retailers respond to the multiple performance dimensions of the incentive program in part by shifting effort toward sales of more expensive products, they channel most of the increased effort toward reaching more customers.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://dx.doi.org/10.1287/mnsc.1090.1021
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 55 (2009)
    Issue (Month): 8 (August)
    Pages: 1306-1320

    as in new window
    Handle: RePEc:inm:ormnsc:v:55:y:2009:i:8:p:1306-1320

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Email:
    Web page: http://www.informs.org/
    More information through EDIRC

    Related research

    Keywords: tournaments; relative performance compensation; dynamic incentives; multitasking;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Lindner, Florian & Dutcher, E. Glenn & Balafoutas, Loukas & Ryvkin, Dmitry & Sutter, Matthias, 2013. "Strive to be first and avoid being last: An experiment on relative performance incentives," Munich Reprints in Economics 19235, University of Munich, Department of Economics.
    2. Loukas Balafoutas & Glenn Dutcher & Florian Lindner & Dmitry Ryvkin, 2012. "The optimal allocation of prizes in tournaments of heterogeneous agents," Working Papers 2012-08, Faculty of Economics and Statistics, University of Innsbruck.
    3. E. Glenn Dutcher & Loukas Balafoutas & Florian Lindner & Dmitry Ryvkin & Matthias Sutter, 2013. "Strive to be first or avoid being last: An experiment on relative performance incentives," Working Papers 2013-08, Faculty of Economics and Statistics, University of Innsbruck.
    4. Wozniak, David, 2012. "Gender differences in a market with relative performance feedback: Professional tennis players," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 158-171.
    5. Ghazala Azmat & Nagore Iriberri, 2010. "The Provision of Relative Performance Feedback Information: An Experimental Analysis of Performance and Happiness," Working Papers 454, Barcelona Graduate School of Economics.
    6. Clark, Derek J. & Nilssen, Tore & Sand, Jan Yngve, 2012. "Motivating over Time: Dynamic Win Effects in Sequential Contests," Memorandum 28/2012, Oslo University, Department of Economics.
    7. Azmat, Ghazala & Iriberri, Nagore, 2010. "The importance of relative performance feedback information: Evidence from a natural experiment using high school students," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 435-452, August.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:55:y:2009:i:8:p:1306-1320. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.