Compensation and performance: An experimental study

Anna Dodonova and Yuri Khoroshilov

Economics Letters, 2014, vol. 124, issue 2, 304-307

Abstract: This paper investigates how compensation structure affects performance in a simple but effort-consuming task. In this experimental study, the subjects were asked to multiply two-digit numbers for 40 min and were paid using either a linear (with different pay for performance sensitivities) or a convex (option-based) compensation mechanism. We found that per-unit wage has a non-linear positive effect on performance: whereas increasing per-unit compensation from $0 to $0.02 or from $0.05 to $0.15 has virtually no effect on performance, an increase from $0.02 to $0.05 results in higher productivity. We also found that option-based compensation results in better performance.

Keywords: Compensation contract; Incentive contract; Experimental study (search for similar items in EconPapers)
JEL-codes: C9 G3 J3 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:2:p:304-307

DOI: 10.1016/j.econlet.2014.06.004

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