Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322505 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11943
Publisher: 
CESifo GmbH, Munich
Abstract: 
How do different characteristics of pay-for-performance schemes affect fairness perceptions? In two studies, we systematically consider three major classes of incentive schemes: continuous piece rate incentives, discrete bonus schemes, and tournament incentives. We find that pay inequality has a strong negative effect on perceived fairness. Controlling for pay inequality, people consider piece rate schemes fairer than those with a discrete bonus and a tournament design in particular. Adding performance-dependent resource advantages or handicaps negatively influences perceived fairness. We find that procedural fairness judgments are an important factor influencing overall judgments and demonstrate in a third study that the latter have relevant behavioral consequences.
Subjects: 
incentives
merit
contract design
fairness
inequality
JEL: 
C90
D63
J31
J41
Document Type: 
Working Paper
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