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Abstract
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Before
Many firms offer extra bonus to motivate their workers. Some bonus schemes reward the workers by their absolute performance or share of contribution, while others reward the workers outperforming their peers. The structure of bonus schemes affects the incentives the workers face and thus their performance, however, it will also determine the distribution of their incomes, which may or may not be perceived as fair. It is intuitive to think that a bonus scheme creating a larger income gap between the high- and low-performers may bring greater overall output, but at the same time unfair to the low-performers if the output gap is sufficiently small. A rank-order tournament, for example, has been shown to outperform other types of bonus schemes in eliciting the workers’ performance (Lazear & Rosen, 1981). On the other hand, it may be seen as unfair since its win-or-lose structure generates unequal incomes unproportional to the workers’ input (Cappelen, Sorensen & Tungodden, 2007; Konow, 2000). Managers sometimes need to make decisions in which they have to trade off efficiency and fairness. Their decisions could differ since they might hold different beliefs about the incentive effect and different fairness views. Moreover, the relative weight they put on efficiency and fairness could also depend on how they themselves are paid.
In this study, I use a controlled experiment to first investigate people’s beliefs about the effect of bonus incentives on performance and their fairness perceptions towards such incentive schemes, then examine how they make decisions on which incentive scheme to choose for others. I recruited workers from Prolific to work on a real-effort online task under two different bonus schemes to collect baseline data. Then, for the main experiment, I provided the managers (participants assigned to the role of managers) with the results from the workers paid by a flat bonus scheme, then asked them to guess the average output of the workers paid by another bonus scheme. Afterwards, the managers were required to choose a bonus scheme for two other workers that would be recruited in the future. The results show that the managers hold heterogeneous beliefs about incentive effects and heterogeneous fairness views, fairness is very important to the their decisions, but the expected amount of commissions on the workers’ output reduces the weight they attach to fairness.
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After
Many firms offer extra bonus to motivate their workers. Some bonus schemes reward the workers by their absolute performance or share of contribution, while others reward the workers outperforming their peers. The structure of bonus schemes affects the incentives the workers face and thus their performance, however, it will also determine the distribution of their incomes, which may or may not be perceived as fair. It is intuitive to think that a bonus scheme creating a larger income gap between the high- and low-performers may bring greater overall output, but at the same time unfair to the low-performers if the output gap is sufficiently small. A rank-order tournament, for example, has been shown to outperform other types of bonus schemes in eliciting the workers’ performance (Lazear & Rosen, 1981). On the other hand, it may be seen as unfair since its win-or-lose structure generates unequal incomes unproportional to the workers’ input (Cappelen, Falch & Tungodden, 2020;Cappelen, Sorensen & Tungodden, 2007; Konow, 2000).
Managers sometimes need to make decisions in which they have to trade off expected output growth and fairness. Their decisions could differ since they might hold different beliefs about the incentive effect and different fairness views. Moreover, the relative weight they put on efficiency and fairness could also depend on how they themselves are paid. How do people perceive tournament incentives? How do people decide whether or not to incentivize others with tournament bonus?
In this project, I plan to conduct an online experiment to collect data on subjects' beliefs about the output difference under a flat vs. a tournament bonus incentive, their views on the fairness difference of these two bonus schemes, and their choices of bonus schemes for two other workers. In addition, I also plan to investigate whether subjects' perceptions and decisions vary with different gender composition of the worker group. This pre-analysis plan presents the data sources, the experimental design, and the empirical strategy of the project.
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Trial Start Date
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Before
March 13, 2023
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After
May 12, 2023
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Last Published
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Before
March 13, 2023 03:07 PM
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After
May 12, 2023 10:10 AM
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Intervention Start Date
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Before
March 13, 2023
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After
May 12, 2023
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Primary Outcomes (End Points)
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Before
Beliefs about productivity difference under different bonus schemes
Fairness comparisons of different bonus schemes
Choice of bonus scheme for others
Decision on whether to revise initial choice (after receiving more information)
Level of agreement/disagreement with statements on some preferences and policy-related views
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After
Beliefs about output difference under different bonus schemes - without gender consideration, with female workers, with male workers
Fairness comparisons of different bonus schemes - without gender consideration, with female workers, with male workers
Choice of bonus scheme for two others - without gender consideration, for two female workers, for two male workers, for one female worker and one male worker
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Experimental Design (Public)
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Before
The experiment consists of two stages.
In stage 1, the managers are informed that some workers were recruited in the past to work on a real-effort task and that I used three different bonus schemes to motivate these workers. The managers are asked to guess how the different bonus schemes affected the workers’ performance. I provide the managers with the average output of the workers paid by a tournament bonus scheme together with a histogram showing their output distribution. The managers are asked to guess the average output of the workers paid by an equal bonus scheme. I incentivize the managers for accuracy. Then, the managers are asked to make comparisons on the fairness of the two bonus schemes.
In stage 2, the managers are required to make a choice for two workers who will be recruited in the future to work on the same task. The managers choose whether to pay them by the tournament bonus scheme or the equal bonus scheme. Half of the managers are randomly determined to earn a commission proportional to their matched workers’ output. The other half do not earn commissions. The managers are aware that their decisions will be implemented with a one-out-of-ten chance. After making the decision, I ask the managers to write a few sentences on the reasons behind their choices. Then, I provide the managers with full information, the average scores of workers paid by the tournament bonus scheme and equal bonus scheme. With this information, the managers choose whether to keep their initial choice of bonus scheme or choose the other bonus scheme. Again, they write a few sentences to explain their decision.
Finally, the managers answer a short questionnaire on their background information and some preferences.
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After
The experiment consists of three stages.
In stage 1, the managers are informed that some workers were recruited in the past to work on a real-effort task and that I used two different bonus schemes to motivate these workers. The managers are asked to guess how the different bonus schemes affected the workers’ output.
I provide half of the managers with the average output of the workers paid by an equal bonus scheme together with a histogram showing their output distribution. The other half of the managers receive the information of the workers paid by a tournament bonus scheme. The managers are asked to guess the average output of the workers paid by the bonus scheme they do not receive information on. I incentivize the managers for accuracy. Then, the managers are asked to make comparisons on the fairness of the two bonus schemes.
In stage 2, the managers are required to make a choice for two workers who will be recruited in the future to work on the same task. The managers choose whether to pay them by the tournament bonus scheme or the equal bonus scheme. Half of the managers are randomly determined to earn a commission proportional to their matched workers’ output. The other half do not earn commissions. The managers are aware that their decisions will be implemented with a one-out-of-ten chance.
After making the decision, I ask the managers to write a few sentences on the reasons behind their choices.
In stage 3, the managers answer the questions in stage 1 and stage 2 again, but considering for the gender of the workers.
Finally, the managers answer a short questionnaire on their personal characteristics.
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Sample size (or number of clusters) by treatment arms
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Before
500 in proportional tournament treatment, in which 250 earn commissions, 250 do not earn commissions.
500 in winner-takes-all tournament treatment, in which 250 earn commissions, 250 do not earn commissions.
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After
The treatment variation is two by two, thus, there will be approximately 250 individuals in each treatment cell.
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