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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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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
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  1. Eriksson, Tor & Teyssier, Sabrina & Villeval, Marie Claire, 2006. "Self-Selection and the Efficiency of Tournaments," IZA Discussion Papers 1983, Institute for the Study of Labor (IZA).
  2. 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.
  3. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1996. "Involuntary unemployment and non-compensating wage differentials in an experimental labour market," ULB Institutional Repository 2013/5917, ULB -- Universite Libre de Bruxelles.
  4. 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.
  5. Dohmen, Thomas & Falk, Armin, 2006. "Performance Pay and Multi-dimensional Sorting: Productivity, Preferences and Gender," IZA Discussion Papers 2001, Institute for the Study of Labor (IZA).
  6. Clark, Andrew E. & Masclet, David & Villeval, Marie Claire, 2006. "Effort and Comparison Income: Experimental and Survey Evidence," IZA Discussion Papers 2169, Institute for the Study of Labor (IZA).
  7. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
  8. Daniel Parent, 1999. "Methods of Pay and Earnings: A Longitudinal Analysis," ILR Review, Cornell University, ILR School, vol. 53(1), pages 71-86, October.
  9. Marianne Bertrand, 2004. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 723-766, October.
  10. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  11. Dickinson, David L. & Villeval, Marie Claire, 2004. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," IZA Discussion Papers 1222, Institute for the Study of Labor (IZA).
  12. Malcomson, J., 1998. "Individual employment contracts," Discussion Paper Series In Economics And Econometrics 9804, Economics Division, School of Social Sciences, University of Southampton.
  13. 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.
  14. Fehr, Ernst & Schmidt, Klaus M., 2000. "Fairness, incentives, and contractual choices," Munich Reprints in Economics 20659, University of Munich, Department of Economics.
  15. Simon G�chter & 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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  18. 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.
  19. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
  20. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
  21. 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.
  22. Jason Barro & Nancy Beaulieu, 2003. "Selection and Improvement: Physician Responses to Financial Incentives," NBER Working Papers 10017, National Bureau of Economic Research, Inc.
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