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Performance Pay, Sorting and Social Motivation

Tor Eriksson () and Marie Claire Villeval ()

No 07-12, Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: Variable pay creates a link between pay and performance but may also help firms in attracting more productive employees. Our experiment investigates the impact of performance pay on both incentives and sorting and analyzes the influence of repeated interactions between firms and employees on these effects. We show that (i) the opportunity to switch from a fixed wage to variable pay scheme increases the average effort level and its variance; (ii) high skill employees concentrate under the variable pay scheme; (iii) however, in repeated interactions, efficiency wages reduce the attraction of performance pay. Social motivation and reputation influence both the provision of incentives and their sorting effect.

Keywords: Performance pay; incentives; sorting; social motivation; experiment (search for similar items in EconPapers)
JEL-codes: C91 J31 J33 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-exp, nep-lab and nep-soc
Date: 2008-04-04
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Journal Article: Performance-pay, sorting and social motivation (2008) Downloads
Working Paper: Performance Pay, Sorting and Social Motivation (2008) Downloads
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