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Employees often obtain pay increases in several forms, including raises, bonuses, and cost-of-living adjustments. We investigate how controllable factors related to the timing of such increases affect employee effort. In practice, significant variation exists in when a pay increase is (i) announced, (ii) quantified, and (iii) made effective, with these events potentially occurring concurrently (i.e., they are temporally bundled) or at different points in time (i.e., they are temporally unbundled). We posit that varying the temporal separation of these events can affect the nature and timing of the utility gains that they provide, thereby affecting employees’ effort and pattern of productivity. Via an experiment, we find when a pay increase is temporally bundled, employees respond by providing more voluntary effort and that this effect decays over time. In contrast, we find when the increase is temporally unbundled, employees respond with a smaller but more persistent increase in effort, leading to equivalent levels of total output at a lower total compensation cost. Our study provides empirical evidence that refining the timing of pay increases can smooth employee productivity over time and reduce compensation costs without diminishing overall productivity.
Chad Matthew Stefaniak, University of South Carolina
Bryan Richard Stikeleather, University of South Carolina
Nathan Waddoups, University of Denver