The psychological role of pay systems in choosing to work more hours

Abstract

Psychological and economic perspectives are blended to model aspects of pay systems that dispose employees to work more hours beyond what would be predicted by economically rational exchange alone. Three pay-system triggers and their respective paths to more work are expounded: 1) pay equated to units of time, 2) pay contingent on subjective performance standards, and 3) pay growth determined by tournament pay structures. The effects are conceived as self-reinforcing due to loss aversion stemming from endowment of income and sunk cost bias. Also considered are implications for human capital, a posed curvilinear relationship that holds practical relevance for organizational sustainability—i.e., maintenance of the firm's human capital over the long term.