Performance and Relative Incentive Pay: The Role of Social Preferences

__Abstract__ Under relative performance pay, other-regarding workers internalize the negative externality they impose on other workers. In one form -increased own effort reduces others' payoffs- this results in other-regarding individuals depressing efforts. In another form punishment reduces the payoff of other workers- groups with other-regarding individuals feature higher efforts because it is more difficult for these individuals to sustain low-effort (collusive) outcomes. We explore these effects experimentally and find other-regarding workers tend to depress efforts by 15% on average. However, selfish workers are nearly three times more likely to lead workers to coordinate on minimal efforts when communication is possible. Hence, the social preferences composition of a team of workers has nuanced consequences on efforts

Do people who care about others cooperate more? Experimental evidence from relative incentive pay

We experimentally study ways in which social preferences affect individual and group performance under indefinitely repeated relative incentives. We also identify the mediating role that communication and leadership play in generating these effects. We find other-regarding individuals tend to depress efforts by 15% on average. However, selfish individuals are nearly three times more likely to lead players to coordinate on minimal efforts when communication is possible. Hence, the other-regarding composition of a group has complex consequences for organizational performance