Performance and Relative Incentive Pay: The Role of Social Preferences

Pablo Hernandez-Lagos, Dylan B. Minor and Dana Sisak
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Dylan B. Minor: Northwestern University, United States of America

No 13-176/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

Keywords: Social Preferences; Relative Performance; Collusion; Leadership (search for similar items in EconPapers)
JEL-codes: D03 J30 M50 (search for similar items in EconPapers)
Date: 2013-10-24
New Economics Papers: this item is included in nep-hrm
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20130176

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