Ian Larkin

The Psychological Costs of Pay-for-Performance: Implications for the Strategic Compensation of Employees

Most research linking compensation to strategy relies on agency theory economics and focuses on executive pay. We instead focus on the strategic compensation of non-executive employees, arguing that while agency theory provides a useful framework for analyzing compensation, it fails to consider several psychological factors that increase costs from performance-based pay. We examine how psychological costs from social comparison and overconfidence reduce the efficacy of individual performance-based compensation, building a theoretical framework predicting more prominent use of team-based, seniority-based, and flatter compensation. We argue that compensation is strategic not only in motivating and attracting the worker being compensated, but also in its impact on peer workers and the firm’s complementary activities. The paper discusses empirical implications and possible theoretical extensions of the proposed integrated theory.

The Cost of High-Powered Incentives: Employee Gaming in Enterprise Software Sales

This article investigates the pricing distortions that arise from the use of a common nonlinear incentive scheme at a leading enterprise software vendor. The empirical results demonstrate that salespeople are adept at gaming the timing of deal closure to take advantage of the vendor’s accelerating commission scheme. Specifically, salespeople agree to significantly lower pricing in quarters in which they have a financial incentive to close a deal, resulting in mispricing that costs the vendor 6%–8% of revenue. Robustness checks demonstrate that price discrimination by the vendor does not explain the identified effects.

Social Comparisons and Deception Across Workplace Hierarchies: Field and Experimental Evidence

We use a unique database of every SSRN paper download over the course of seven years, along with detailed resume data on a random sample of SSRN authors, to examine the role of demographic factors, career concerns, and social comparisons on the commission of a particular type of gaming: the selfdownloading of an author’s own SSRN working paper solely to inflate the paper’s reported download count. We find significant evidence that authors are more likely to inflate their papers’ download counts when a higher count greatly improves the visibility of a paper on the SSRN network. We also find limited evidence of gaming due to demographic factors and career concerns, and strong evidence of gaming driven by social comparisons with various peer groups. These results indicate the importance of including psychological factors in the study of deceptive behavior. * We thank SSRN for providing the data for this study.

Association Between Academic Medical Center Pharmaceutical Detailing Policies and Physician Prescribing

Importance In an effort to regulate physician conflicts of interest, some US academic medical centers (AMCs) enacted policies restricting pharmaceutical representative sales visits to physicians (known as detailing) between 2006 and 2012. Little is known about the effect of these policies on physician prescribing. Objective To analyze the association between detailing policies enacted at AMCs and physician prescribing of actively detailed and not detailed drugs. Design, Setting, and Participants The study used a difference-in-differences multivariable regression analysis to compare changes in prescribing by physicians before and after implementation of detailing policies at AMCs in 5 states (California, Illinois, Massachusetts, Pennsylvania, and New York) that made up the intervention group with changes in prescribing by a matched control group of similar physicians not subject to a detailing policy. Exposures Academic medical center implementation of policies regulating pharmaceutical salesperson visits to attending physicians. Main Outcomes and Measures The monthly within-drug class market share of prescriptions written by an individual physician for detailed and nondetailed drugs in 8 drug classes (lipid-lowering drugs, gastroesophageal reflux disease drugs, diabetes drugs, antihypertensive drugs, hypnotic drugs approved for the treatment of insomnia [sleep aids], attention-deficit/hyperactivity disorder drugs, antidepressant drugs, and antipsychotic drugs) comparing the 10- to 36-month period before implementation of the detailing policies with the 12- to 36-month period after implementation, depending on data availability. Results The analysis included 16u2009121u2009483 prescriptions written between January 2006 and June 2012 by 2126 attending physicians at the 19 intervention group AMCs and by 24u2009593 matched control group physicians. The sample mean market share at the physician-drug-month level for detailed and nondetailed drugs prior to enactment of policies was 19.3% and 14.2%, respectively. Exposure to an AMC detailing policy was associated with a decrease in the market share of detailed drugs of 1.67 percentage points (95% CI, −2.18 to −1.18 percentage points; Pu2009<u2009.001) and an increase in the market share of nondetailed drugs of 0.84 percentage points (95% CI, 0.54 to 1.14 percentage points; Pu2009<u2009.001). Associations were statistically significant for 6 of 8 study drug classes for detailed drugs (lipid-lowering drugs, gastroesophageal reflux disease drugs, antihypertensive drugs, sleep aids, attention-deficit/hyperactivity disorder drugs, and antidepressant drugs) and for 9 of the 19 AMCs that implemented policies. Eleven of the 19 AMCs regulated salesperson gifts to physicians, restricted salesperson access to facilities, and incorporated explicit enforcement mechanisms. For 8 of these 11 AMCs, there was a significant change in prescribing. In contrast, there was a significant change at only 1 of 8 AMCs that did not enact policies in all 3 areas. Conclusions and Relevance Implementation of policies at AMCs that restricted pharmaceutical detailing between 2006 and 2012 was associated with modest but significant reductions in prescribing of detailed drugs across 6 of 8 major drug classes; however, changes were not seen in all of the AMCs that enacted policies.

Doing Well by Making Well: The Impact of Corporate Wellness Programs on Employee Productivity

This paper investigates the impact of a corporate wellness program on worker productivity using a panel of objective health and productivity data from 111 workers in five laundry plants. Although almost 90% of companies use wellness programs, existing research has focused on cost savings from insurance and absenteeism. We find productivity improvements based both on program participation and postprogram health changes. Sick and healthy individuals who improved their health increased productivity by about 10%, with surveys indicating sources in improved diet and exercise. Although the small worker sample limits both estimate precision and our ability to isolate mechanisms behind this increase, we argue that our results are consistent with improved worker motivation and capability. The study suggests that firms can increase operational productivity through socially responsible health policies that improve both workers’ wellness and economic value, and provides a template for future large-scale studies of he...

Why Do Goal-Based Incentives Cause Cheating? Unpacking the Confounding Effects of Goals, Social Comparisons and Pay

Recent studies suggest that goal-based incentive systems cause cheating. However, goal-based incentives comprise a number of distinct elements, including statement of a goal, the goal’s justification and framing, and rewards for meeting the goal. Previous experimental research has simultaneously varied several of these elements within a single condition, leading to interpretational confounds in assessing the impact of goal assignment on cheating. We use a carefully-designed 2x2x2 experiment that isolated cheating caused by assigning a goal, by providing peer comparison justifications, and by paying for performance. This design measures the individual impact of each element on cheating, and any possible interaction effects. We find that only pay-for-performance and peer comparison framing increased cheating, while the mere assignment of goals (without these other elements) did not. Our results suggest that care is necessary when examining the impact of incentive system elements on cheating, and that mere goals themselves do not cause cheating.