Team or Individual: What Determines Workers' Preferred Bonus Schemes?
17 Pages Posted: 6 Dec 2011
Date Written: November 30, 2011
This paper uses data from a firm with team production to investigate the association between workers’ productivity, risk aversion and preferred bonus scheme (team or individual). Standard economics make a strong prediction in this case. Workers persistently producing above the team average should vote for an individual bonus. The only concern that may moderate this preference is risk aversion. The economic model predicts the case at hand fairly well. Relative work place productivity is strongly associated with a preference for individual bonuses, and risk aversion is associated with a preference for a team bonus. There is, however, one noticeable exception to this pattern: a substantial fraction of low performers prefer an individual bonus. I argue there are two types of other regarding concerns that can explain why under-performers prefer a payment system that reduces their income; distributional fairness and social emotions.
Keywords: payment systems, risk aversion, social appraisal, fairness
JEL Classification: J330, D630
Suggested Citation: Suggested Citation