The Effects of Compensation Schemes and Performance Feedback on Employee’s Self-Selection: An Experimental Investigation

This paper is a study of how people with heterogonous individual characteristics self-select into different compensation schemes. A laboratory experiment is designed in which “workers” can join “companies” that pay according to various schemes: piece rate, revenue sharing, individual tournament, and team tournament. The main findings are: (1) Subjects with high relative performance always prefer individual tournament. (2) Risk-averse subjects are less likely to choose competitive schemes. (3) Individual tournament attracts fewer women than men, which is partially explained by gender-specific social preferences. (4) Compared to people with siblings, only children are less likely to accept any team-based schemes without information about their teammates. (5) The provision of feedback about relative performance can adjust individuals’ biased self-beliefs and then influence their self-selections.