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Pay for Performance with Motivated Employees

Author

Listed:
  • Cerrone Claudia

    (Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113Bonn, Germany)

  • Manna Ester

    (Department of Economic Theory, Universitat de Barcelona, Av. Diagonal, 696, 08034Barcelona, Spain)

Abstract

Heterogeneity in intrinsic motivation affects the optimal contract offered to employees in teams. Under individual incentives, the effort exerted by both motivated and selfish employees is distorted. This distortion is mitigated if employees receive a wage based on team performance. As a result, the principal prefers to use team incentives, while motivated employees are better off with individual incentives.

Suggested Citation

  • Cerrone Claudia & Manna Ester, 2018. "Pay for Performance with Motivated Employees," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(1), pages 1-8, January.
    • Handle: RePEc:bpj:bejeap:v:18:y:2018:i:1:p:8:n:10
    DOI: 10.1515/bejeap-2017-0190
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    References listed on IDEAS

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    2. De Chiara, Alessandro & Manna, Ester, 2022. "Firms' ownership, employees’ altruism, and product market competition," Economic Modelling, Elsevier, vol. 109(C).

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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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