Performance pay and multi-dimensional sorting: productivity, preferences and gender

Arbeitspapier

This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. In a first step we elicit subjects' productivity levels. Subjects then face the choice between a fixed or a variable payment scheme. Depending on the treatment, the variable payment is either a piece rate, a tournament or a revenue-sharing scheme. We elicit additional individual characteristics such as subjects' risk attitudes, measures of self-assessment and overconfidence, social preferences, gender and personality. We also elicit self-reported measures of work effort, stress and exhaustion. Our main findings are as follows. First, output is much higher in the variable pay schemes (piece rate, tournament, and revenue sharing) compared to the fixed payment scheme. Second, this difference is largely driven by productivity sorting. On average, the more productive a worker is, the more likely he self-selects into the variable pay scheme. Third, relative self-assessment and overconfidence affect worker self-selection, in particular into tournaments. Fourth, risk averse workers prefer fixed payments and are less likely to sort into variable pay schemes. Fifth, people endowed with social preferences are less likely to sort into tournaments. Sixth, variable pay schemes attract men more than women, a difference that is partly explained by gender-specific risk attitudes. Seventh, self-selection is also affected by personality differences. Finally, reported effort is significantly higher in all variable pay conditions than in the fixed wage condition. In sum, our findings underline the importance of multi-dimensional sorting, i.e., the tendency for different incentive schemes to systematically attract people with different abilities, preferences, self-assessments, gender and personalities.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 2001

Classification and Topics

• Classification: Wirtschaft ; Personnel Economics: Compensation and Compensation Methods and Their Effects ; Personnel Economics: Labor Contracting Devices ; Labor and Demographic Economics: General ; Compensation Packages; Payment Methods ; Wage Level and Structure; Wage Differentials ; Economics of Gender; Non-labor Discrimination ; Time Allocation and Labor Supply ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Design of Experiments: Laboratory, Individual ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: personnel economics ; sorting ; incentives ; productivity ; ability ; piece rates ; tournament ; revenue sharing ; risk preferences ; overconfidence ; gender ; experiment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dohmen, Thomas ; Falk, Armin
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/33559
• Last update: 10.03.2025, 11:44 AM CET