Wage delegation in the field

• Author: Sabrina Jeworrek,Vanessa Mertins
• DOI: http://doi.org/10.1111/jems.12313
• Date: 01 November 2019
• Published date: 01 November 2019

Received: 2 August 2017

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Revised: 15 February 2019

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Accepted: 15 February 2019

DOI: 10.1111/jems.12313

ORIGINAL ARTICLE

Wage delegation in the field

Sabrina Jeworrek

1,2

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Vanessa Mertins

3

1

Department for Structural Change and

Productivity, Halle Institute for Economic

Research, Halle, Germany

2

Faculty of Economics and Management,

Otto von Guericke University Magdeburg,

Magdeburg, Germany

3

Faculty I, University of Vechta, Vechta,

Germany

Correspondence

Sabrina Jeworrek, Halle Institute for

Economic Research, Kleine

Maerkerstrasse 8, 06108 Halle, Germany.

Email: sabrina.jeworrek@iwh-halle.de

Abstract

By conducting a natural field experiment, we analyze the managerial policy of

delegating the wage choice to employees. We find that this policy enhances

performance significantly, which is remarkable since allocated wage premiums

of the same size have no effect at all. Observed self‐imposed wage restraints and

absence of negative peer effects speak in favor of wage delegation, although the

chosen wage premium levels severely dampen its net value. Additional

experimental and survey data provide important insights into employees'

underlying motivations.

KEYWORDS

compensation, delegation, field experiment, reciprocity, responsibility alleviation, worker empow-

erment, workplace democracy

JEL CLASSIFICATION

C91, C93, J33, M52, M54

1

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INTRODUCTION

In the presence of incomplete contracts, it is now considered a standard practice for employers to pay workers high

wages with the intent of eliciting effort above the minimal level. This practice is feasible given the considerable evidence

from laboratory experiments which illustrates that performance increases together with the size of the wage offer.

Moreover, these results underline the importance of reciprocity in employment relations. Recent field experiments have

challenged this notion by demonstrating that the positive effects of wage premia cannot necessarily survive a robustness

test outside the laboratory (Al‐Ubaydli, Andersen, Gneezy, & List, 2015; U. Gneezy & List, 2006; Hennig‐Schmidt,

Sadrieh, & Rockenbach, 2010; Kube, Maréchal, & Puppe, 2012). These studies, however, have implemented unilateral

wage decisions by the employer and have thereby neglected the possibility of employees' wage codetermination.

Depending on whether employees have a say in the wage‐setting process, the same payment may have different effects.

The present paper is the first to analyze the managerial policy of delegating the wage choice to employees in a

naturally occurring work environment. In a controlled field experiment, we test whether granting employees the right

to decide about their remuneration promotes performance. If so, at least two related questions occur and may diminish

potential positive effects: Will employees exploit such a policy by choosing maximum wages? And, if only part of the

workforce is given this right, how will those who are not allowed to set their own wage respond when they know that

others are given this right?

In line with the idea that employees value decision rights even beyond their intrinsic value (Bartling, Fehr, & Herz,

2014), previous empirical research (Falk & Kosfeld, 2006; Fehr, Herz, & Wilkening, 2013) suggests that treating

employees fairly in terms of expanding their discretionary power may lead to better organizational outcomes, such as

increased effort provision. Accordingly, it is only reasonable that some pioneering companies such as Ebay, Virgin, or

Netflix experiment with advancements of ordinary empowerment strategies, leaving the choice of the working hours,

supervisors, or the paid wage to employees' discretion. Brazilian manufacturer Semco, for example, allows its

J Econ Manage Strat. 2019;28:656–669.wileyonlinelibrary.com/journal/jems656

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© 2019 Wiley Periodicals, Inc.