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Peer-dependent incentives and prepaid bonuses: An experimental investigation of productivity improvement

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  • Yang, Fanzheng

Abstract

I use insights gained from the literature of incentive design and gift exchange to explore the most efficient approaches for improving employee productivity. By considering two potential influence factors simultaneously, i.e. the peer-dependent incentives and the prepaid signing bonus, I create an experimental labor market in which “workers” can join “companies” that pay according to different peer-dependent incentives: revenue sharing, individual tournament and team tournament. Meanwhile, a prepaid signing bonus is designed as a random number which is given exogenously in addition to a certain incentive. My main findings include (i) the incentive that is more competitive generates higher individual productivity; and (ii) regardless of incentives, an additional signing bonus can always induce employees to improve their productivity. Hence I suggest that the optimal incentive design should consider the combination use of peer-dependent incentive and prepaid bonus.

Suggested Citation

  • Yang, Fanzheng, 2019. "Peer-dependent incentives and prepaid bonuses: An experimental investigation of productivity improvement," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 81(C), pages 152-163.
    • Handle: RePEc:eee:soceco:v:81:y:2019:i:c:p:152-163
    DOI: 10.1016/j.socec.2019.06.004
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    More about this item

    Keywords

    Productivity; Peer-dependent incentive; Signing bonus; Laboratory experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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