Abstract

Suppose the company set the level of pay and then let employees choose the fractions they wanted as guaranteed salary, stock options and at-risk bonus. The fraction in at-risk bonus was capped at 20% of total pay and the payout was between 0 and 2.5 times the amount put at-risk and was a function of individual and group performance. This is not a theoretical example; it's real. And, it is interesting for a variety of reasons, including that it is so extreme and because the organization invited some researchers inside to study the fascinating choices made by employees. They were essentially running an experiment by externally changing the system, and letting the author and one of his colleagues do some evidence-based analysis of what followed. There is substantial variation in the choice of contingent pay with some workers choosing almost all base pay and others choosing almost entirely stock options.

Document Type

Article

Publication Date

11-2013

Publisher Statement

Contents © 2013. Reprinted with permission from WorldatWork. Content is licensed for use by purchaser only. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

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