Management Accounting Section Midyear Meeting

The Effect of Narcissism and Contract Frame on Contract Choice and Performance

• In Event: Incentives and Compensation II

Abstract

In this study, we examine the impact of narcissism and contract frame on contract choice and performance in an experimental setting. Given evidence that narcissism in the workforce is on the rise, it is important to understand whether and how more narcissistic employees will respond to economically equivalent contracts framed in bonus or penalty terms. Results indicate that more narcissistic employees prefer bonus to penalty contracts while less narcissistic employees are indifferent between contract frames. In addition, we find that narcissism moderates the relation between contract frame and performance such that more narcissistic employees perform better under bonus than penalty contracts while the opposite is the case for less narcissistic employees. Additional analysis suggests that individual’s risk avoidance plays a significant role in their contract preferences, such that individuals with higher levels of narcissism and risk-seeking behavior are more willing to select an incentive contract over a guaranteed fixed wage, but only for bonus relative to penalty framed contracts. For those selecting the incentive contract, individuals with higher (lower) levels of narcissism and entitlement perform better under a bonus (penalty) contract. Thus, narcissism is an important individual characteristic to be considered when designing incentive systems in practice.

Authors

• Theresa A Libby, University of Central Florida

• Wioleta Celina Olczak, Marquette University