Peer-dependent incentives and prepaid bonuses: An experimental investigation of productivity improvement

Fanzheng Yang

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2019, vol. 81, issue C, 152-163

Abstract: I use insights gained from the literature of incentive design and gift exchange to explore the most efficient approaches for improving employee productivity. By considering two potential influence factors simultaneously, i.e. the peer-dependent incentives and the prepaid signing bonus, I create an experimental labor market in which “workers” can join “companies” that pay according to different peer-dependent incentives: revenue sharing, individual tournament and team tournament. Meanwhile, a prepaid signing bonus is designed as a random number which is given exogenously in addition to a certain incentive. My main findings include (i) the incentive that is more competitive generates higher individual productivity; and (ii) regardless of incentives, an additional signing bonus can always induce employees to improve their productivity. Hence I suggest that the optimal incentive design should consider the combination use of peer-dependent incentive and prepaid bonus.

Keywords: Productivity; Peer-dependent incentive; Signing bonus; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 J24 J33 M52 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:81:y:2019:i:c:p:152-163

DOI: 10.1016/j.socec.2019.06.004

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