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Do Employees Care About Their Relative Income Position? Behavioral Evidence Focusing on Performance in Professional Team Sport

Authors


  • Benno Torgler, QuBE (Queensland Behavioural Economics Group), The School of Economics and Finance, Queensland University of Technology, Box 2434, Brisbane, QLD 4001, Australia and EBS Universität für Wirtschaft und Recht, EBS Business School, Rheingaustramath formulae 1, 65375 Oestrich-Winkel, Germany 〈benno.torgler@qut.edu.au〉; Sascha L. Schmidt, ISBS, EBS Business School, Rheingaustramath formulae 1, 65375 Oestrich-Winkel, Germany 〈sascha.schmidt@ebs.de〉; Bruno S. Frey, Department of Economics, University of Zurich, Hottingerstrasse 10, CH-8032 Zurich, Switzerland, and Warwick Business School, The University of Warwick, Scarman Road, Coventry, CV4 7Al, UK 〈bruno.frey@econ.uzh.ch〉. Benno Torgler, Bruno Frey, and Sascha Schmidt are also associated with CREMA—Center for Research in Economics, Management and the Arts, Switzerland.

Abstract

Objective

Do employees care about their relative (economic) position in comparison to their co-workers in an organization? And if so, does it raise or lower their performance? While the topic is widely discussed in the literature, behavioral evidence on these important questions is relatively rare.

Methods

This article explores the pay-performance relationship using a sports data set. The strength of analyzing such data is that sports tournaments take place in a very controlled environment that helps to isolate a relative income effect.

Results

Using two large unique data sets that cover 26 seasons in basketball and eight seasons in soccer (Bundesliga), we find considerable support for the idea that a relative income disadvantage is correlated with a decrease in individual performance. In addition, there does not seem to be any tolerance for income disparity based on the hope that such differences may signal that better times are ahead.

Conclusions

This suggests the need to consider the impact of the relative income position when designing pay-for-performance mechanisms within firms and teams.

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