Talking About Performance or Paying for it? Evidence from a Field Experiment

55 Pages Posted: 8 Jul 2019

See all articles by Kathrin Manthei

Kathrin Manthei

Rheinische Fachhochschule Köln

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management; IZA Institute of Labor Economics

Timo Vogelsang

University of Cologne - Faculty of Management, Economics and Social Sciences

Abstract

We investigate the causal effect of conversations about performance and performance pay implementing a 2x2 field experiment in a retail chain. In the performance pay treatments, managers receive a bonus for profit increases. In the performance review treatments, managers have regular meetings with their supervisors discussing their activities to increase profits. We find that review conversations raise profits by 7%-8%. However, when additionally receiving performance pay this effect vanishes. Analyzing an extension of Bénabou and Tirole (2006), we rationalize this effect formally and provide empirical evidence that the use of performance pay changes the nature of conversations undermining their value.

Keywords: performance pay, performance reviews, monitoring, feedback, field experiment, management practices

JEL Classification: J3, L2, M5, C93

Suggested Citation

Manthei, Kathrin and Sliwka, Dirk and Vogelsang, Timo, Talking About Performance or Paying for it? Evidence from a Field Experiment. IZA Discussion Paper No. 12446. Available at SSRN: https://ssrn.com/abstract=3415792

Kathrin Manthei (Contact Author)

Rheinische Fachhochschule Köln ( email )

Schavenstr. 1a-b
Köln, Nordrhein-Westfalen 56776
Germany

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management ( email )

Koln, 50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Timo Vogelsang

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

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