Watching or Not Watching? Access to Information and the Incentive Effects of Firing Threats

Jose Ortiz Gomez (), Roberto Hernán-González, Brice Corgnet, Carles Solà and Jordi Brandts
Authors registered in the RePEc Author Service: Roberto Hernán González

No 1023, Working Papers from Barcelona School of Economics

Abstract: A common rationale for the use of salary contracts is that they can produce substantial incentive effects when coupled with firing threats. However, enforcing firing threats may require close supervision of employees, thus possibly offsetting the very reasons salaries are commonly used, such as lowering monitoring costs and granting autonomy to employees. We design a series of experiments to study the effectiveness of firing threats when only limited information is available to supervisors. We show that light and unobtrusive supervision can produce large incentive effects. Compared to salary contracts, firing threats based on observing organizational performance alone increase employees' output by 70% whereas only observing how long an employee works doubles output. These findings show that salaries can produce large incentive effects even in the absence of intensive supervision. Finally, we show that salary contracts with firing threats perform at least as well as other popular incentive schemes, such as bonuses, individual and team incentives, that rely on a similar amount of information about employees.

Keywords: Laboratory experiments; incentives; monitoring; firing threats (search for similar items in EconPapers)
JEL-codes: C92 D23 D82 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-cta, nep-exp, nep-hrm and nep-lma
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Journal Article: Watching or not watching? Access to information and the incentive effects of firing threats (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1023

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