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Title:Performance pay and multi-dimensional sorting: productivity, preferences and gender PDF Logo
Authors:Dohmen, Thomas
Falk, Armin
Issue Date:2006
Series/Report no.:IZA Discussion Papers 2001
Abstract:This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. In a first step we elicit subjects' productivity levels. Subjects then face the choice between a fixed or a variable payment scheme. Depending on the treatment, the variable payment is either a piece rate, a tournament or a revenue-sharing scheme. We elicit additional individual characteristics such as subjects' risk attitudes, measures of self-assessment and overconfidence, social preferences, gender and personality. We also elicit self-reported measures of work effort, stress and exhaustion. Our main findings are as follows. First, output is much higher in the variable pay schemes (piece rate, tournament, and revenue sharing) compared to the fixed payment scheme. Second, this difference is largely driven by productivity sorting. On average, the more productive a worker is, the more likely he self-selects into the variable pay scheme. Third, relative self-assessment and overconfidence affect worker self-selection, in particular into tournaments. Fourth, risk averse workers prefer fixed payments and are less likely to sort into variable pay schemes. Fifth, people endowed with social preferences are less likely to sort into tournaments. Sixth, variable pay schemes attract men more than women, a difference that is partly explained by gender-specific risk attitudes. Seventh, self-selection is also affected by personality differences. Finally, reported effort is significantly higher in all variable pay conditions than in the fixed wage condition. 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 abilities, preferences, self-assessments, gender and personalities.
Subjects:personnel economics
sorting
incentives
productivity
ability
piece rates
tournament
revenue sharing
risk preferences
overconfidence
gender
experiment
JEL:M52
M55
J00
J3
J33
J31
J16
J22
J24
C91
D81
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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