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Team or individual: What determines workers' preferred bonus schemes?

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  • Torsvik, Gaute

    ()
    (University of Bergen)

Abstract

This paper uses data from a firm with team production to investigate the association between workers’ productivity, risk aversion and preferred bonus scheme (team or individual). The economic model makes a strong prediction in this case. Workers who produce more than the team average should vote for an individual bonus. The only concern that may moderate this preference is risk aversion. Workers lagging behind the team average should vote for a team bonus. The economic model predicts the case at hand fairly well: A high relative work place productivity is strongly associated with a preference for individual bonuses, and risk aversion is associated with a preference for a team bonus. There is, however, one noticeable exception; a substantial fraction of low performers prefer an individual bonus. I argue there are two types of other regarding concerns that can explain why these workers prefer a payment system that reduces their income; distributional fairness and social emotions.

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Bibliographic Info

Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 13/11.

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Length: 16 pages
Date of creation: 15 Nov 2011
Date of revision:
Handle: RePEc:hhs:bergec:2011_013

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Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
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Web page: http://www.uib.no/econ/en
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Related research

Keywords: Payment systems; risk aversion; social appraisal; fairness.;

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References

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  1. Ellingsen, Tore & Johannesson, Magnus & Tjøtta, Sigve & Torsvik, Gaute, 2007. "Testing Guilt Aversion," Working Papers in Economics 14/07, University of Bergen, Department of Economics.
  2. John A. List, 2007. "On the Interpretation of Giving in Dictator Games," Journal of Political Economy, University of Chicago Press, vol. 115, pages 482-493.
  3. Justin Esarey & Timothy C. Salmon & Charles Barrilleaux, 2012. "What Motivates Political Preferences? Self-Interest, Ideology, And Fairness In A Laboratory Democracy," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 604-624, 07.
  4. Englmaier, Florian & Wambach, Achim, 2010. "Optimal incentive contracts under inequity aversion," Games and Economic Behavior, Elsevier, vol. 69(2), pages 312-328, July.
  5. Orana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social preferences and the response to incentives: Evidence from personnel data," Natural Field Experiments 00212, The Field Experiments Website.
  6. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
  7. Tore Ellingsen & Magnus Johannesson, 2007. "Paying Respect," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 135-150, Fall.
  8. Fershtman, Chaim & Gneezy, Uri & List, John, 2008. "Equity Aversion," CEPR Discussion Papers 6853, C.E.P.R. Discussion Papers.
  9. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
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