Is there folly when worker A is more productive than worker B? : examining heterogeneous responses to individual and group performance pay

Abstract

Although it is commonly suggested that employees of different ability levels respond in different ways to performance pay, there is little research documenting such a relationship. In this study, I examine how employee ability moderates the effectiveness of two types of incentives in a field experiment with warehouse workers at Picklnc, a large U.S.-based retailer. The incentives are distinguished by their level of reward: one is tied to individual performance, the other to group performance. I find, first, that the individual incentive is superior in improving productivity and, second, that there is variation in how employees of different ability levels respond. The relationship between individual performance pay and ability is J-shaped: weak performers respond most positively, followed by top performers, followed by middle performers. Group performance pay is negatively related to ability. The results suggest that more effective performance pay systems will need to account for variability in employee response.