Does allowing employees to set their own pay motivate greater effort? A re-examination of potential drivers
73 Pages Posted: 25 Apr 2024
Date Written: February 15, 2024
Abstract
Prior studies find allowing employees to set their own pay (pay delegation) increases effort, and
attribute this effect to employees’ sense of responsibility and/or guilt aversion, and not to trust.
However, these studies use experimental designs that likely inhibited the emergence of trust and
do not measure responsibility or guilt aversion. Using a modified design, we find trust has
greater explanatory power than either responsibility or guilt aversion. However, we also observe
the presence of countervailing forces that offset the mediating effects of trust. In a second study,
we find combining pay delegation with either a compensation cap or an incentive contract does
not help firms retain the effects of pay delegation through trust while mitigating the
countervailing forces. Thus, the motivational effects of pay delegation are more nuanced than
previously believed, and our results suggest further research on the motivational effects of pay
delegation is needed.
Keywords: decision rights; effort; employment contracts; gift exchange; guilt aversion; pay delegation; reciprocity; responsibility; trust
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