Abstract

AbstractWe study a bonus pay setting where a principal hires a supervisor to evaluate a group of potentially shirking workers. The supervisor and her workers develop relational feelings (either positive or negative) after interacting with each other. We analyze a novel class of organizational infractions where the supervisor provides false evaluations of the workers’ performance to accommodate her other-regarding preferences. We show that the workers’ reaction to these supervisory violations and their decision to provide effort depend on their relational concerns. The implication is that incentive pays can be ineffective due to the distortion of relational concerns.

Highlights

  • Motivating workers is a major problem in organizations, that can be solved by using incentive pays.1 The latter are studied under two forms in the literature

  • Bonus payments, that correspond to a premium that is paid in case of good performance

  • While they study how otherregarding preferences affect the side-contract between corrupt supervisors and agents, we focus on the relationship between relational feelings and incentive pays

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Summary

Introduction

Motivating workers is a major problem in organizations, that can be solved by using incentive pays. The latter are studied under two forms in the literature. The result is confirmed by Dur and Tichem (2015), who show that when the agent is altruistic or spiteful towards the principal, the optimal bonus depends on her other-regarding preferences as well These articles show that both positive and negative relational feelings affect effort and performance. Three-tier hierarchies were introduced in agency theory by Tirole (1986), who first considered an organization composed by principal, a supervisor and an agent to study collusive behaviors between supervisors and workers Ever since this three-layered structure has become quite common in the analysis of organizational corruption (e.g., Laffont and Martimort, 1997; Chang and Lai, 2002; Bac and Kucuksenel, 2006) and (e.g., Prendergast, 2007), to the best of.

Related evidence
Timing and setup
Supervisory violations
Other-regarding preferences
Simplifications and assumptions
The supervision stage: type I violations
The supervision stage: type II violations
The production stage
The design stage
On the inefficiency of bonus payments
Findings
Conclusion
Full Text
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