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Performance and Relative Incentive Pay: The Role of Social Preferences

Author

Listed:
  • Pablo Hernandez

    (New York University Abu Dhabi)

  • Dylan B. Minor

    (Northwestern University, United States of America)

  • Dana Sisak

    (Erasmus University Rotterdam)

Abstract

Under relative performance pay, other-regarding workers internalize the negative externality they impose on other workers. In one form -increased own effort reduces others' payoffs- this results in other-regarding individuals depressing efforts. In another form punishment reduces the payoff of other workers- groups with other-regarding individuals feature higher efforts because it is more difficult for these individuals to sustain low-effort (collusive) outcomes. We explore these effects experimentally and find other-regarding workers tend to depress efforts by 15% on average. However, selfish workers are nearly three times more likely to lead workers to coordinate on minimal efforts when communication is possible. Hence, the social preferences composition of a team of workers has nuanced consequences on efforts.

Suggested Citation

  • Pablo Hernandez & Dylan B. Minor & Dana Sisak, 2013. "Performance and Relative Incentive Pay: The Role of Social Preferences," Tinbergen Institute Discussion Papers 13-176/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20130176
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    References listed on IDEAS

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    More about this item

    Keywords

    Social Preferences; Relative Performance; Collusion; Leadership;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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