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Performance Pay, Sorting and Social Motivation

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Author Info

  • Tor Eriksson

    () (Department of economics - University of Aarhus)

  • Marie-Claire Villeval

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

Variable pay links pay and performance but may also help firms in attracting more productive employees. Our experiment investigates the impact of performance pay on both incentives and sorting and analyzes the influence of repeated interactions between firms and employees on these effects. We show that (i) the opportunity to switch from a fixed wage to variable pay scheme increases the average effort level and its variance; (ii) high skill employees concentrate under the variable pay scheme; (iii) however, in repeated interactions, efficiency wages reduce the attraction of performance pay. Social motivation and reputation influence both the provision of incentives and their sorting effect.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00331753.

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Date of creation: 2008
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Publication status: Published, Journal of Economic Behavior and Organization, 2008, 68, 2, pp. 412-421
Handle: RePEc:hal:journl:halshs-00331753

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00331753/en/
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Keywords: performance pay ; incentives ; sorting ; social motivation ; experiment;

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References

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  1. Tor Eriksson & Sabrina Teyssier & Marie-Claire Villeval, 2006. "Self-Selection and the Efficiency of Tournaments," Working Papers 0603, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Daniel Parent, 1997. "Methods of Pay and Earnings: A Longitudinal Analysis," CIRANO Working Papers 97s-14, CIRANO.
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  4. Bellemare, Charles & Shearer, Bruce S., 2006. "Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment," IZA Discussion Papers 2227, Institute for the Study of Labor (IZA).
  5. Thomas Dohmen & Armin Falk, 2011. "Performance Pay and Multidimensional Sorting: Productivity, Preferences, and Gender," American Economic Review, American Economic Association, vol. 101(2), pages 556-90, April.
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  7. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
  8. Marie-Claire Villeval & David Dickinson, 2004. "Does Monitoring Decrease Work Effort ? The Complementarity Between Agency and Crowding-Out Theories," Working Papers 0409, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  9. Andrew E. Clark & David Masclet & Marie Claire Villeval, 2010. "Effort and Comparison Income: Experimental and Survey Evidence," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 407-426, April.
  10. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
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  17. Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1996. "Involuntary unemployment and non-compensating wage differentials in an experimental labour market," Open Access publications from Maastricht University urn:nbn:nl:ui:27-16459, Maastricht University.
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  19. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-63, July.
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Citations

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Cited by:
  1. Dohmen Thomas & Falk Armin, 2010. "Performance Pay and Multi-dimensional Sorting - Productivity, Preferences and Gender," Research Memoranda 003, Maastricht : ROA, Research Centre for Education and the Labour Market.
  2. Cunyat, Antoni & Sloof, Randolph, 2011. "Employee types and endogenous organizational design: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 553-573.
  3. Michalis Drouvelis & Julian C. Jamison, 2012. "Selecting public goods institutions: who likes to punish and reward?," Working Papers 12-5, Federal Reserve Bank of Boston.
  4. Jana Vyrastekova & Sander Onderstal & Pierre Koning, 2010. "Self-Selection and the Power of Incentive Schemes: An Experimental Study," Tinbergen Institute Discussion Papers 10-074/1, Tinbergen Institute.
  5. Vanessa Mertins & Agnes Baeker, 2012. "Risk-sorting and preference for team piece rates," IAAEU Discussion Papers 201208, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).

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