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It's What You Say Not What You Pay

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Abstract

We study manager-employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In the absence of managerial intervention subjects invariably slip into coordination failure. To overcome a history of coordination failure, managers have two instruments at their disposal, increasing employees' financial incentives to coordinate and communication with employees. We find that communication is a more effective tool than incentive changes for leading organizations out of performance traps. Examining the content of managers' communication, the most effective messages specifically request a high effort, point out the mutual benefits of high effort, and imply that employees are being paid well.

Suggested Citation

  • Jordi Brandts & David J. Cooper, 2005. "It's What You Say Not What You Pay," UFAE and IAE Working Papers 643.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  • Handle: RePEc:aub:autbar:643.05
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    References listed on IDEAS

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    1. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    2. Foss, Nicolai J, 2001. "Leadership, Beliefs and Coordination: An Explorative Discussion," Industrial and Corporate Change, Oxford University Press, vol. 10(2), pages 357-388, June.
    3. C.Mónica Capra & Tomomi Tanaka & ColinF. Camerer & Lauren Feiler & Veronica Sovero & CharlesN. Noussair, 2009. "The Impact of Simple Institutions in Experimental Economies with Poverty Traps," Economic Journal, Royal Economic Society, vol. 119(539), pages 977-1009, July.
    4. Jordi Brandts & David J. Cooper, 2004. "Observability and Overcoming Coordination Failure in Organizations," UFAE and IAE Working Papers 630.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    5. Battalio, Raymond & Samuelson, Larry & Van Huyck, John, 2001. "Optimization Incentives and Coordination Failure in Laboratory Stag Hunt Games," Econometrica, Econometric Society, vol. 69(3), pages 749-764, May.
    6. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-248, March.
    7. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
    8. Jordi Brandts & David J. Cooper, 2006. "A Change Would Do You Good .... An Experimental Study on How to Overcome Coordination Failure in Organizations," American Economic Review, American Economic Association, vol. 96(3), pages 669-693, June.
    9. David J. Cooper & John H. Kagel, 2005. "Are Two Heads Better Than One? Team versus Individual Play in Signaling Games," American Economic Review, American Economic Association, vol. 95(3), pages 477-509, June.
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    Cited by:

    1. Fehr, Ernst & Tyran, Jean-Robert, 2007. "Money illusion and coordination failure," Games and Economic Behavior, Elsevier, vol. 58(2), pages 246-268, February.
    2. Galbiati, Roberto & Schlag, Karl H. & van der Weele, Joël J., 2013. "Sanctions that signal: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 34-51.
    3. López-Pérez, Raúl, 2007. "Heterogeneous Focal Points, Fairness, and Coordination," Working Papers in Economic Theory 2007/14, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    4. Roberto Galbiati & Karl Schlag & Joël van der Weele, 2009. "Can sanctions induce pessimism? An experiment," Economics Working Papers 1150, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Al-Ubaydli, Omar, 2012. "Natural resources and the tradeoff between authoritarianism and development," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 137-152.

    More about this item

    Keywords

    Change; Incentives; Coordination; Communication; Experiments; Organizations;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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