Review of Behavioral Economics > Vol 6 > Issue 3

Distributional Concerns in Managers’ Compensation Schemes for Heterogeneous Workers: Experimental Evidence

Jordi Brandts, IAE(CSIC) and Barcelona GSE, Spain, jordi.brandts@iae.csic.es José M. Ortiz, Middlesex University, UK, n.ortizgomez@mdx.ac.uk Carles Solá Belda, City University of New York, USA, carles.solabelda@csi.cuny.edu
 
Suggested Citation
Jordi Brandts, José M. Ortiz and Carles Solá Belda (2019), "Distributional Concerns in Managers’ Compensation Schemes for Heterogeneous Workers: Experimental Evidence", Review of Behavioral Economics: Vol. 6: No. 3, pp 193-218. http://dx.doi.org/10.1561/105.00000107

Published: 01 Aug 2019
© 2019 J. Brandts, J. M. Ortiz and C. Solá Belda
 
Subjects
Experimental Economics,  Labor Economics: Wage Structure
 
Keywords
JEL Codes: C91D63D90
Equitygift exchangeexperimenteffortproductivitypay secrecy
 

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In this article:
1. Introduction
2. Literature Review
3. Experimental Design
4. Experimental Results and Discussion
5. Summary and Conclusions
References

Abstract

We present results from three-player experiments aimed at studying distributional concerns in how owner-managers compensate themselves and workers of different productivities and effort costs, as well as their relations to various equity principles. We are also interested in how owner-managers decisions’ are affected by pay secrecy. We use a game in which workers first exert effort and owner-managers then decide on bonuses for themselves and workers. Our design includes four treatments: (1) different productivities of workers with complete information; (2) different productivities of workers with pay secrecy among workers; (3) different effort cost of workers with complete information; and (4) different effort cost of workers with pay secrecy among workers. The equity principles we focus on are ‘production-equity’, higher production leads to higher wage, and ‘effort-cost equity’, higher effort-cost leads to higher wage. Across all treatments about 50% of all manager choices are compatible both with ‘production equity’ and with ‘effort- cost equity’, about 20% only with production equity and about 15% only with effort-cost equity. Overall, the effect of effort-cost equity is significantly stronger than that of production-equity. Pay secrecy does not significantly affect compensation differences among workers.

DOI:10.1561/105.00000107