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Performance-pay, sorting and social motivation

  • Eriksson, Tor
  • Villeval, Marie Claire

Variable pay links pay and performance but may also help firms to attract 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, and (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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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 68 (2008)
Issue (Month): 2 (November)
Pages: 412-421

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Handle: RePEc:eee:jeborg:v:68:y:2008:i:2:p:412-421
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  1. Bellemare, Charles & Shearer, Bruce, 2010. "Sorting, incentives and risk preferences: Evidence from a field experiment," Economics Letters, Elsevier, vol. 108(3), pages 345-348, September.
  2. Dickinson, David & Villeval, Marie-Claire, 2008. "Does monitoring decrease work effort?: The complementarity between agency and crowding-out theories," Games and Economic Behavior, Elsevier, vol. 63(1), pages 56-76, May.
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