Performance pay, monetary gifts, and the moderating role of wage level
Raoul Isselhard et al.
What the paper says
We conducted a field experiment to compare the effects of financial performance pay and monetary gifts on employee performance. We randomly assigned store managers at a German discount supermarket chain to receive either performance pay based on profit increases or an unconditional gift in the form of a lump-sum payment. Our findings indicate that, on average, performance pay significantly outperformed gifts, yielding profit increases of approximately 8 %. However, managers’ base wages appear to moderate the effectiveness of performance pay versus gifts. Performance pay appears to have a stronger performance effect for managers with higher wages. In contrast, for gifts, we find tentative evidence of a stronger effect at lower wages. We argue that the effectiveness of both incentives depends on a reference point defined by the desired bonus-to-wage ratio (i.e. performance-pay-to-wage or gift-to-wage ratio). For performance pay, which can vary based on effort, higher-wage managers must exert more effort to meet this ratio. For gifts, which are fixed amounts, lower-wage managers may perceive the same bonus as more generous, which can strengthen reciprocity.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.