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

Thomas Dohmen, IZA, Bonn

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 are then
facing the choice between a fixed and a variable payment scheme,
which is, depending on the treatment, either a piece rate, a
tournament or a revenue-sharing scheme. Finally we elicit
additional individual characteristics such as subjects' risk
attitudes, measures of self-assessment and overconfidence, social
preferences, gender and personality. In addition, we 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 schemes. 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 are less likely to sort
into variable pay schemes but prefer fixed payments. Fifth, people
endowed with social preferences are less likely to sort into
tournaments. Sixth, variable pay schemes attract men more than
women. This is partly explained by gender-specific risk attitudes.
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., different incentive schemes systematically attract people
with different abilities, preferences, self assessments, gender
and personalities.

Date: 25 April 2006