Performance Pay and Multi-dimensional Sorting - Productivity, Preferences and Gender

This paper studies the impact of incentives on worker self-selection in a controlledlaboratory experiment. Subjects face the choice between a fixed and a variable paymentscheme. Depending on the treatment, the variable payment is a piece rate, a tournamentor a revenue-sharing scheme. We find that output is higher in the variable pay schemes(piece rate, tournament, and revenue sharing) compared to the fixed payment scheme.This difference is largely driven by productivity sorting. In addition personal attitudessuch as willingness to take risks and relative self-assessment as well as gender affectthe sorting decision in a systematic way. Moreover, self-reported effort is significantlyhigher in all variable pay conditions than in the fixed wage condition. Our lab findingsare supported by an additional analysis using data from a large and representativesample. In sum, our findings underline the importance of multi-dimensional sorting,i.e., the tendency for different incentive schemes to systematically attract people withdifferent individual characteristics.