DOI: 10.5255/ukda-sn-856870
title: Experiments on Performance-related Pay and Stress: Evidence from a Cross-over Study, 2019

description: As described in the overarching funded project description, the focus of the research is to examine the relationship between performance-related pay and stress using experimental methods. Importantly, stress is measured here both subjectively (i.e. asking the stress level of participants) and objectively (i.e. collection of salivary cortisol). 

The basic experiment is generally the same across all of the experiments in the project. Subjects are recruited by using a database at the university where the experiments took place. All experimental sessions happened at 1400 to control for the diurnal patterns of cortisol. Participants were also told to avoid exercising, smoking, drinking caffeine and eating two hours before the experiment since these also affect cortisol. During the experiment, participants are told generally about the experiment and enter a 10-minute relaxation period where they can colour in a mindfulness colouring page if they wish. Then they are asked questions about their subjective stress and a baseline cortisol measurement. Next, participants are given three example maths questions to complete in their own time and then allocated their employment contract. The performance-related pay (PRP) contract is piece rate based on the number of correct answers while the minimum performance contract (nonPRP) is a flat rate once ten questions are answered correctly. Then, participants are given 10 minutes to complete as many questions of maths problems (up to 50) without the use of a calculator. The computer screen gives the number of correct answers and for the nonPRP group, a banner is shown when they answer 10 questions correctly. After the task, a screen shows how much they earned from their performance, including the show up fee. Another measure of cortisol is taken and a survey administered to collect information on subjective stress and to collect demographic information. Participants had a 10 minute rest period of colouring after which a third cortisol sample was taken. Then participants had one final 10 minute rest period after which a fourth and final cortisol sample was taken. Finally, participants were called into the control room and given their payment.

In this first experiment, we want to establish the robustness of the relationship in two dimensions. First, we randomise the payment condition (either PRP or nonPRP) to ensure that we avoid problems of sample selection. Second, we utilise a cross-over design where a week after the initial experiment, we invited the participants back to the laboratory and switched conditions on the participants. This way, each participant serves as their own control, allowing us to control for individual heterogeneity in subjective and objective stress. Participants were paid a £5 participation fee, £5 if they met the minimum performance contract and were paid £0.20 for each correct answer when in the PRP contract. The findings, published in the Journal of Economic Behavior and Organization in 2021, showed that the PRP contract generated higher levels of cortisol and subjective stress.