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Fairness properties of compensation schemes

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How do different characteristics of pay-for-performance schemes affect fairness perceptions? In two studies, we systematically consider three major classes of incentive schemes: continuous piece rate incentives, discrete bonus schemes, and tournament incentives. We find that pay inequality has a str...

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Main Authors: Becker, Christoph (Author) , Fehr, Dietmar (Author) , Rau, Hannes (Author) , Trautmann, Stefan T. (Author) , Xu, Yilong (Author)
Format: Article (Journal)
Language:English
Published: 2025
Edition:Online ahead of print
In: The journal of law, economics, and organization
Year: 2025, Pages: 1-25
ISSN:1465-7341
DOI:10.1093/jleo/ewaf016
Online Access:Verlag, kostenfrei, Volltext: https://doi.org/10.1093/jleo/ewaf016
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Author Notes:Christoph K. Becker, Dietmar Fehr, Hannes Rau, Stefan T. Trautmann, and Yilong Xu

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520 |a How do different characteristics of pay-for-performance schemes affect fairness perceptions? In two studies, we systematically consider three major classes of incentive schemes: continuous piece rate incentives, discrete bonus schemes, and tournament incentives. We find that pay inequality has a strong negative effect on perceived fairness. Controlling for pay inequality, people consider piece rate schemes fairer than those with a discrete bonus and a tournament design in particular. Adding performance-dependent resource advantages or handicaps negatively influences perceived fairness. We find that procedural fairness judgments are an important factor influencing overall judgments and demonstrate in a third study that the latter have relevant behavioral consequences (JEL C90, D63, J31, J41). 
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