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Performance Pay, Sorting and Social Motivation

Author

Listed:
  • Tor Eriksson

    (Department of economics)

  • Marie Claire Villeval

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

Abstract

Variable pay links pay and performance but may also help firms in attracting 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; (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.

Suggested Citation

  • Tor Eriksson & Marie Claire Villeval, 2008. "Performance Pay, Sorting and Social Motivation," Post-Print halshs-00331753, HAL.
    • Handle: RePEc:hal:journl:halshs-00331753
    DOI: 10.1016/j.jebo.2007.10.003
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00331753
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    performance pay; incentives; sorting; social motivation; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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