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The incentive impact of the fixed wage – A real effort experiment

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  • Manthei, Kathrin
  • Mohnen, Alwine

Abstract

According to most simple agency models only the performance dependent part of the compensation drives the agent’s effort decision. However, we show that this is not necessarily the case for reference dependent and loss averse agents. Based on Pokorny (2008) we firstly analyze the impact of the fixed wage on work performance within a linear incentive contract when agents are loss averse. Secondly, we test the resulting hypotheses in an economic real effort experiment. Varying the fixed wage but keeping the piece rate constant over treatments, we find a non-monotonic slope of effort in the fixed payment with significantly higher effort levels for a very low fixed wage. Very high fixed payments also yield higher subject performance but to a minor and less robust extent.

Suggested Citation

  • Manthei, Kathrin & Mohnen, Alwine, 2013. "The incentive impact of the fixed wage – A real effort experiment," Zeitschrift fuer Personalforschung. German Journal of Research in Human Resource Management, Rainer Hampp Verlag, vol. 27(4), pages 331-353.
    • Handle: RePEc:rai:zfpers:doi_10.1688/1862-0000_zfp_2013_04_manthei
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    More about this item

    Keywords

    real effort experiment; incentives; fixed wage; loss aversion;
    All these keywords.

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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