Performance Pay and Multi-Dimensional Sorting: Productivity, Preferences and Gender

By Thomas J. Dohmen, Armin Falk. Social Science Research Network, 2006

879 citations recorded by the source corpus.

This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. Subjects face the choice between a fixed and a variable payment scheme. Depending on the treatment, the variable payment is a piece rate, a tournament or a revenue-sharing scheme. We find that output is higher in the variable pay schemes (piece rate, tournament, and revenue sharing) compared to the fixed payment scheme. This difference is largely driven by productivity sorting. In addition personal attitudes such as willingness to take risks and relative self-assessment as well as gender affect the sorting decision in a systematic way. Moreover, self-reported effort is significantly higher in all variable pay conditions than in the fixed wage condition. Our lab findings are supported by an additional analysis using data from a large and representative sample. In sum, our findings underline the importance of multi-dimensional sorting, i.e., the tendency for different incentive schemes to systematically attract people with different individual characteristics.

Subfields: Economics and Econometrics, Management Science and Operations Research, Safety Research

View Paper: https://www.semanticscholar.org/paper/341559c09124e235c66bf5448c84e78e442215a5

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Citations in the corpus

Why real leisure really matters: incentive effects on real effort in the laboratory (2014, neutral): “individual incentives should outperform team incentives (Alchian and Demsetz, 1972; Holmström, 1982), several published studies, and perhaps even more unpublished studies, have failed to observe such differences (van Dijk, Sonnemans and van Winden, 2001; Dohmen and Falk, 2011).”
Performance Pay, Risk Attitudes and Job Satisfaction (2008, positive): “Experiments confirm that those with higher ability and more confidence tend to choose a performance pay scheme in the laboratory (Dohmen and Falk, 2006).”
The Gender Effect in Risky Asset Holdings (2012, background): “This is in contrast to Dohmen et al. (2011), who study the same issue among the general population.”
A Reconsideration of Gender Differences in Risk Attitudes (2016, neutral): “This interpretation suggests that the positive correlation between risk aversion and IQ emphasized, among others, by Dohmen et al. (2010), could be an artifact of the format of the price list, as already argued by Andersson et al. (2013). Dominated choices (choosing always safe or always risky when ”
A survey of experimental research on contests, all-pay auctions and tournaments (2014, methodology): “Dohmen and Falk (2011) use a similar approach by letting subjects self-select into one of the four payment schemes, including a fixed payment, piece-rate, tournament and a revenue-sharing scheme.”
Gender and Competition (2011, background): “Finally, Dohmen & Falk (2011) test whether trust and reciprocity influence compensation choices using decisions in a standard trust game.”
Pay, Intrinsic Motivation, Extrinsic Motivation, Performance, and Creativity in the Workplace: Revisiting Long-Held Beliefs (2015, background): “Eisenberger and Cameron (1996) proposed learned industriousness theory, which, consistent with arguments summarized above (see also Bandura, 1986), sees monetary rewards as potentially competence-enhancing.”
Gender, Competitiveness and Career Choices (2012, neutral): “This paper is part of a small but growing literature that aims to predict economic outcomes outside of the laboratory with laboratory measures, see e.g. Karlan (2005), Ashraf et al. (2006), Meier and Sprenger (2010), Dohmen et al. (2011), Dohmen and Falk (2011), Zhang (2012a).”