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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
Date of revision:
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. Tor Eriksson & Sabrina Teyssier & Marie Claire Villeval, 2006. "Self-selection and the Efficiency of Tournaments," Post-Print halshs-00175480, HAL.
  2. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  3. Daniel Nagin & James Rebitzer & Seth Sanders & Lowell Taylor, 2002. "Monitoring, Motivation and Management: The Determinants of Opportunistic Behavior in a Field Experiment," NBER Working Papers 8811, National Bureau of Economic Research, Inc.
  4. Fehr, Ernst & Schmidt, Klaus M., 2000. "Fairness, incentives, and contractual choices," Munich Reprints in Economics 20659, University of Munich, Department of Economics.
  5. W. Bentley MacLeod & Daniel Parent, 1998. "Job Characteristics and the Form of Compensation," CIRANO Working Papers 98s-08, CIRANO.
  6. Bellemare, Charles & Shearer, Bruce S., 2006. "Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment," IZA Discussion Papers 2227, Institute for the Study of Labor (IZA).
  7. 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.
  8. 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.
  9. Dickinson, David & Villeval, Marie-Claire, 2008. "Does monitoring decrease work effort?: The complementarity between agency and crowding-out theories," Games and Economic Behavior, Elsevier, vol. 63(1), pages 56-76, May.
  10. Andrew E. Clark & David Masclet & Marie-Claire Villeval, 2008. "Effort and Comparison Income: Experimental and Survey Evidence," CEP Discussion Papers dp0886, Centre for Economic Performance, LSE.
  11. 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.
  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. Daniel Houser & Erte Xiao & Kevin McCabe & Vernon Smith, 2005. "When punishment fails: Research on sanctions, intentions and non- cooperation," Experimental 0503001, EconWPA.
  14. 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.
  15. 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.
  16. 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.
  17. 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).
  18. Daniel Parent, 1999. "Methods of Pay and Earnings: A Longitudinal Analysis," ILR Review, Cornell University, ILR School, vol. 53(1), pages 71-86, October.
  19. Marianne Bertrand, 1999. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," NBER Working Papers 6900, National Bureau of Economic Research, Inc.
  20. 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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  22. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
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