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Performance Pay, Sorting and Social Motivation

  • Tor Eriksson

    ()

    (Department of economics - University of Aarhus)

  • Marie Claire Villeval

    ()

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

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.

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File URL: https://halshs.archives-ouvertes.fr/halshs-00331753/document
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Paper provided by HAL in its series Post-Print with number halshs-00331753.

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Date of creation: 2008
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Publication status: Published in Journal of Economic Behavior and Organization, Elsevier, 2008, 68 (2), pp. 412-421. <10.1016/j.jebo.2007.10.003>
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://halshs.archives-ouvertes.fr/halshs-00331753
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  1. Dohmen T.J. & Falk A., 2010. "Performance pay and multi-dimensional sorting - Productivity, preferences and gender," Research Memorandum 012, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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  7. Andrew E. Clark & David Masclet & Marie Claire Villeval, 2010. "Effort and Comparison Income: Experimental and Survey Evidence," ILR Review, Cornell University, ILR School, vol. 63(3), pages 407-426, April.
  8. Daniel Houser & Erte Xiao & Kevin McCabe & Vernon Smith, 2005. "When Punishment Fails: Research on Sanctions, Intentions and Non- Cooperation," Experimental 0502001, EconWPA, revised 18 Feb 2005.
  9. Daniel Parent, 1999. "Methods of Pay and Earnings: A Longitudinal Analysis," ILR Review, Cornell University, ILR School, vol. 53(1), pages 71-86, October.
  10. Tor Eriksson & Sabrina Teyssier & Marie Claire Villeval, 2009. "Self-selection and the Efficiency of Tournaments," Post-Print halshs-00451600, HAL.
  11. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
  12. David Dickinson & Marie Claire Villeval, 2004. "Does Monitoring Decrease Work Effort? The Complementary between Agency and Crowding-Out Theories," Post-Print halshs-00176789, HAL.
  13. Harry J. Paarsch & Bruce S. Shearer, 1999. "The Response of Worker Effort to Piece Rates: Evidence from the British Columbia Tree-Planting Industry," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 643-667.
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  17. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-63, July.
  18. Falk, Armin & Gachter, Simon & Kovacs, Judit, 1999. "Intrinsic motivation and extrinsic incentives in a repeated game with incomplete contracts," Journal of Economic Psychology, Elsevier, vol. 20(3), pages 251-284, June.
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  22. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough or Don't Pay at All," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 791-810.
  23. Simon Gächter & Ernst Fehr, . "Fairness in the Labour Market – A Survey of Experimental Results," IEW - Working Papers 114, Institute for Empirical Research in Economics - University of Zurich.
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