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Superiors’ Discretionary Bonus Pool Allocations when Agents Face Disparate Performance Risk
Michael MajerczykGeorgia State University
Tyler ThomasUniversity of Wisconsin-Madison
November 1, 2017
We would like to thank In Gyun Baek, Conner Blake, Jing Davis, Rachel Martin, Ella Mae Matsumura, Nathan Mecham, Kristian Mortenson, Steve Smith, Todd Thornock, Kimberly Walker, Dimitri Yatsenko, Flora Zhou as well as participants of the Managerial Accounting Experimental Research Brownbag, the Brigham Young University Accounting Research Symposium, The Georgia State University Critical Thinking Seminar, the 40th European Accounting Association Congress, the 2017 AAA Annual Meeting, and the 2017 AAA Midwest Region Meeting for their helpful comments. We gratefully acknowledge funding for this project from the BRITE Lab Research Grant and the Department of Accounting and Information Systems of the Wisconsin School of Business, as well as from the School of Accountancy at Georgia State University.
Superiors’ Discretionary Bonus Pool Allocations when Agents Face Disparate Performance Risk
Abstract: We examine how decision makers adjust their allocation decisions in risky environments, and how organizational context influences these decisions. Superiors often have discretion over bonus allocations, allowing them to make adjustments for the risk faced by agents. It is thus important to understand how superiors use this discretion and the organizational factors, specifically decision responsibility and availability of information, that affect their allocation decisions. We provide evidence that when superiors are confronted by inequality in agents’ performance risk (i.e., uncertainty as to how effort translates to performance), they tend to sympathize through their bonus allocation decisions with those agents with greater performance risk. However, superiors are often charged with decisions, including initial resource allocations, which affect or create disparity in agents’ performance risk. In this case, we find that superiors are not more, and potentially less, sympathetic to the disadvantaged agents compared to the setting without additional decision responsibility. Further, when information is available to superiors that can justify the initial resource allocation decision, they will actually favor the advantaged agents through their bonus allocation. Our results provide insight into organizational factors that affect how superiors use bonus discretion and make allocation decisions, and we demonstrate that available information can have a significant biasing effect in how superiors make these decisions. These results have direct implications for organizations, given the pervasiveness of discretion in bonus allocation decisions and organizational concerns for fairness and the job satisfaction of employees and their effects on overall performance.
I. Introduction
Fairness and equity concerns have received widespread consideration across academic
disciplines. In business and economics there has been a focus on distribution preferences
examining how third-parties make allocation decisions. While the default in settings with non-
implicated stakeholders is an equal-split payoff to all parties, prior research has found that
context can affect such outcomes (Konow 2009). Our paper examines how organizational
context, specifically decision responsibility and information, affects decision makers in a setting
in which inequality exists in payoffs. Specifically, this study examines how decision makers
adjust the welfare of others in risky environments, and how such decisions are affected by
organizational context introduced into the setting.
Discretionary bonus allocations and subjective performance evaluation are prime settings
where decision makers affect payoffs and welfare within organizations. Given superiors’
awareness of agents’ environmental factors including risk, superiors can be granted discretion
over bonus allocations for their agents (Bol 2008; 2011). Often these bonus allocations can be
tied to subjective performance evaluation that allows for consideration of non-contractible, or
difficult to measure, factors to adjust for performance risk. We define performance risk as the
uncertainty that a given amount of effort will translate to an anticipated level of performance.
Performance risk can result from, among others, such factors as differences in regional and
market conditions, the level or quality of training, and the amount or quality of capital and other
resources at an agent’s disposal. Agents’ performance risk can also be affected by superiors, as
superiors are often responsible for the initial allocation of resources that can fundamentally affect
the disparate performance risk confronted by agents. Thus, as superiors can have discretion in
both the planning and reward stages, it is important to understand how they respond to risk
disparity and the corresponding effects on their judgments and decisions during these stages.
1
Organizations provide unique contexts within which decisions are made. First, within
organizations superiors are often responsible for making decisions that affect both the risk that
agents are exposed to and overall agent welfare. Second, organizations provide superiors with
information. As a greater variety of key non-financial performance indicators are recorded and
reported, superiors are likely to have even more information at their disposal upon which to base
their resource and bonus/compensation decisions. However, it can also be the case that superiors
possess or are provided with outdated or task-irrelevant information, which can influence their
decisions. Bol and Smith (2011) find that, manipulating controllability, information in the form
of objective performance measures can influence superiors’ subjective evaluation of a separate
and independent task performed by the agent. The authors find high (low) performance on the
independent objective measure significantly increases (decreases) the superiors’ rating on the
subjective measure. Thus, it is important to understand how superiors use information and the
corresponding, potentially biasing, effects on superiors’ decisions.
In our study, we evaluate how superiors’ bonus allocation decisions for their agents are
affected by disparity in agent performance risk, and how the addition of organizational context,
specifically additional superior decision responsibility and available information, further
influence these decisions. In order to more clearly identify the effects of organizational context,
we assume the superior is a non-implicated stakeholder, in that their decision does not directly or
indirectly affect their own personal welfare. As in Guo, Libby and Liu (2017), this allows us to
focus on superiors’ nonfinancial preferences and more directly evaluate their preferences for
equity. Given that standard economic theory does not allow for predictions when the decision
maker is a non-implicated stakeholder, we base our predictions on theories from the behavioral
literature.
2
We first predict that if superiors (decision makers) are devoid of organizational context,
then they will sympathize with agents (individuals) that are confronting greater downside risk in
their payoff (disadvantaged agent). Comparatively, when superiors have responsibility for the
risk confronted by agents, as with allocating initial resources to agents, this responsibility could
make the risk more salient to superiors, leading to greater sympathy for the disadvantaged agent,
as suggested by restorative justice theory. However, following consistency theory, these
superiors might be less likely to favor the disadvantaged agent, as they will be somewhat
influenced to show consistency in their actions by continuing to favor the advantaged agent, as
the superior’s decision led to the advantage. Thus, we do not make a directional prediction for
bonus allocation decisions by superiors with responsibility over the initial resource allocation.
We more concretely predict that additional context from available information within
organizations will lead superiors to favor one agent and assign that agent lower risk. These
superiors will be motivated to be consistent with this initial decision, and can justify consistent
actions, as the initial decision was based on available information. Thus, with increased decision
responsibility and available information (both common components of organizational context),
superiors are predicted to not sympathize with the agent assigned greater downside risk.
To test our predictions, we conduct a laboratory experiment consisting of a lottery
drawing in which participants are grouped into triads, with one participant acting as the superior
and the other two as agents.1 The superior is either responsible for the payoff allocation for their
agents or for both the payoff allocation and the initial probability of their agents achieving the
bonus. The assignment of initial probability operationalizes an initial resource allocation to
agents, which would affect agents’ performance risk. Prior to the payoff allocation and lottery
1 While we use the terms superior and agent for simplicity of explanation, in the actual study no such contextualized words were ever used. Roles were identified by color, with the “superior” identified as Orange, and the “agents” identified as Blue and Red.
3
drawing, participants perform a trivia task, in which they answer 12 multiple choice questions
and an opened-ended trivia question. Performance on this task provides information related to
the agents for the superiors’ decisions.
Our results show that superiors without context (i.e., without additional decision
responsibility or information) strongly sympathize with the disadvantaged agent over the
advantaged agent in their payoff allocation. Once responsibility over the initial allocation
designating agents’ performance risk is introduced, superiors continue to sympathize with the
disadvantaged agent in their bonus allocation decisions. These bonus allocation decisions by the
superior, however, show no signs of greater sympathy, contrary to a restorative justice
explanation. Rather, the results provide some support for a consistency story, in which superiors
are somewhat influenced to be consistent in their decision-making between their initial allocation
decision and their final bonus allocation decision. Most notably, the presence of information has
a significant effect on superiors’ behavior. First, when the information is available, it leads
superiors to allocate greater resources (i.e., a higher likelihood of winning the lottery) to the
agent reflected better by the information. Second, superiors allocate a greater payoff to these
advantaged agents, demonstrating significantly less sympathy to the disadvantaged agent, and a
bias toward the advantaged agent and consistent decision-making to justify previous decisions.
We also preform supplemental analyses. First, we show that when information is
available to superiors without responsibility over resource allocation, the information has a
strong effect on superiors’ payoff allocations, such that superiors favor the agent reflected more
favorably by the information in their payoff allocations, regardless of the agents’ risk situation.
Second, we provide evidence that when the superior has responsibility over resource allocation
and information available when making bonus allocations, then there is a disparity in agents’
4
fairness and satisfaction perceptions, with disadvantaged agents believing their pay to be less fair
while also being less satisfied with the process compared to advantaged agents.
Our study contributes to the literature on discretionary bonus allocations and subjective
performance evaluation by focusing on superiors’ behavior when confronted with, or responsible
for, disparate agent performance risk. Despite the large literature in this area, few studies in
management accounting have focused on the behavior of superiors. Bol, Keune, Matsumura, and
Shin (2010) suggest that further research examining superiors’ use of discretion concerning agent
performance is needed. Our findings help address this paucity of research, and provide insight
into decision making by superiors in the evaluation and bonus allocation process. Specifically,
we examine how the introduction of greater organizational context can affect superior’s decision
making and our study suggests a need to further examine how discretionary decisions related to
fairness vary in organizational contexts.
We provide evidence that the presence of disparate risk among agents devoid of
organizational context can lead superiors to sympathize with the disadvantaged agent through a
greater payoff allocation. Further, we show that this sympathy toward the disadvantaged agent
does not increase when the superior makes an initial allocation decision that affects the agents’
risk disparity, with some evidence that sympathy potentially decreases when the superior makes
a decision that creates the disparate risk. This is in line with superiors having the desire to be
consistent with their initial decisions and organizational context deteriorating natural sympathy.
Ultimately, we show that in an environment with additional decision responsibility and
information, more representative of the typical organizational context, superiors will actually
make decisions that perpetuate inequality rather than correct for it, as their payoff allocations are
biased more toward advantaged agents.
5
We also add to the accounting literature by showing how the availability of information
can affect superiors’ decisions which subsequently have ex post motivational implications. While
it is often assumed that additional information will improve decision-making, prior studies
provide evidence that this is not always the case (Luft 2009; Ramalingam 2012; Luft, Shields,
and Thomas 2016). Strikingly, we demonstrate that information (even without other
responsibilities) significantly drives superiors’ allocation decisions, biasing them in accordance
with the information. This becomes more noteworthy when considered in light of the findings of
Maas, van Rinsum, and Towry (2011) that superiors will often seek out information to make
decisions, suggesting that more information is likely to be consciously acquired over time.
Our results are also important in adding insight to the potential effects on agents. Agents
might be unsure ex ante about their superiors’ intentions when they have discretion over
evaluations or bonus allocations, but following an allocation decision by the superior, the agent
obtains new information, which can potentially affect their beliefs about the superior and their
motivation ex post. We show that superiors having resource allocation responsibility and
available information leads to disparity in agents’ perceptions of fairness and satisfaction, such
that disadvantaged agents believe they are less fairly paid and are significantly less satisfied with
the bonus allocation process compared to advantaged agents. This disparity in agents’ fairness
and satisfaction perceptions could lead to subsequent adverse motivational effects and remedial
actions.
In the next section we develop our formal hypotheses related to the research question.
Section III outlines the experimental method used. Section IV provides the empirical results and
Section V concludes.
6
II. Hypotheses Development
When considering general decision makers, superiors in organizations are in a unique
position because, as a product of their role, many of their decisions (e.g., resource and bonus
allocations) directly impact the welfare of their agents, even when not necessarily carrying direct
personal stakes for the superior themselves. In fact, Rohde and Rohde (2014) specifically
identify managers (superiors) making allocation decisions as an example of an impartial
spectator. In a laboratory setting, Aguiar, Becker, and Miller (2013) find that impartial spectators
give less biased distributions compared to implicated stakeholders, suggesting that impartial
spectators exhibit different behavior than implicated stakeholders that heretofore have been the
primary focus of the distribution literature in economics. The findings in Aguiar et al. (2013) and
suggestion of Rohde and Rohde (2014) propose a need to understand impartial spectator
behavior in organizations and how organizations themselves may affect decision-making
behavior.
Perhaps, surprisingly, a number of empirical studies have revealed a preference for
unequal allocations (Konow 2009). Konow (2003) emphasizes that context matters in allocation
decisions and Faravelli (2007) provides evidence of such context effects, finding the difference
in allocation decisions of economics and sociology students acting as impartial spectators
disappears as more context is added. Thus, while the default behavior for making allocation
decisions may be to provide an equal-split allocation (e.g., allocating the bonus pool equally
between agents), context can affect allocation decisions made by superiors and lead to unequal
distributions.
Organizations and employees’ roles therein create substantial context that is abstracted
away by the previously discussed studies. Organizations by their nature develop context that is
7
likely absent from many other instances of equality that face typical decision makers. Decision
makers in organizations are often superiors granted discretion based on their position. In
addition, organizational information systems make it unlikely that superiors will make decisions
devoid of any context, including information pertaining to agents and their performance risk.
Performance Risk of Agents
Performance risk represents the uncertainty that a given amount of effort will translate to
an anticipated level of performance and is ubiquitous across jobs and industry. The failure of
effort to translate to performance produces difficulties and inefficiencies in contracting, and is
one explanation for the lack of complete contracts observed in practice (Frederickson 1992).
Proponents of relative performance evaluation partially advocate for its use as a means to control
for common performance risk shared amongst agents (Holmstrom 1982). However, while
controlling for common risk, relative performance evaluation does not inherently correct for
idiosyncratic performance risk encountered by agents. To help address idiosyncratic risk,
superiors can be given discretion in evaluating performance or allocating bonuses to agents, as
direct superiors are most likely to possess relevant information for these types of decisions (Bol
2008; 2011). In the most basic case, superiors would be aware solely of agents’ responsibility (or
target expectation for performance) and performance risk.
Performance risk that confronts each agent provides superiors with context concerning
the agents’ situation. Such context is likely to cause deviations from default equal-split
allocations. If performance risk is observable by the superior but differs for agents due to the
operational environment or other factors outside of the superior’s control, it is likely that
superiors will find this disparity of one agent having an advantage over the other (i.e.,
encountering less performance risk) unequitable. Prior studies find that people do not like ex ante
8
inequality and perceptions of fairness are influenced by the perceived responsibility of unfair
outcomes (Johansson and Svedsater 2009; Cappelen, Halvorsen, Sorensen, and Turngodden
2013; Rhode and Rhode 2014). In general, individuals seem more accepting of inequality that is
based on self-determination rather than luck (Chavanne 2016), but when no other information is
provided, the only thing to attribute performance risk to is luck (good or bad). Further, Johansson
and Svedsater (2009) provide evidence that individuals are not only adverse to inequalities
between themselves and others, but also to inequalities between other individuals.
Hence, we argue that superiors charged with bonus allocation for their agents with
disparate performance risk will seek to remedy the inequality resulting from the performance risk
through their bonus allocation decisions. By sympathizing with the agent that is facing greater
risk (i.e., the disadvantaged agent) through a higher bonus allocation, the superior can
counterbalance the disparity in performance risk and the corresponding inequality, and attempt to
equate expected payoffs of the agents. Importantly, we make this prediction assuming that the
only organizational context the superior has been exposed to is the performance risk, effectively
acting as a standard non-implicated decision maker. Thus, we predict that given discretion over
bonus allocation and no additional responsibilities and without any other additional information,
superiors will show sympathy, through an increased bonus, to the agent that has been
disadvantaged by greater performance risk. Hence, we state the following formal hypothesis:
H1: Given discretion over bonus allocation but without additional allocation responsibilities or additional information, superiors will allocate a greater percentage of the bonus pool to the agent with greater performance risk.
Resource Allocation Responsibility
Performance risk can stem from both random and systematic factors. While most random
risk, for simplicity, can be assumed as common, systematic factors of performance risk will
9
likely be idiosyncratic. For example, two agents overseeing projects in an organization will not
likely share the same client demands, competence/expertise of members of project teams, or
funding and other resource allocations. Each of these elements can affect the disparity in agents’
performance risk and are dependent upon an initial resource allocation. That is, agents must be
assigned to clients, teams must be built for or assigned to agents, and funds and resources must
be allocated or earmarked prior to the undertaking of the project. Further, it is often the case that
initial resource allocations are made by the superior that eventually evaluates the agents for
bonus allocation purposes, since such allocation responsibilities often fall under the job
description of superiors.
This additional responsibility for initial resource allocation means that the superior will
ultimately be responsible for some amount of the performance risk and risk disparity confronted
by the agents. Restorative justice has been proposed to affect individuals’ behavior, in which ‘an
offender’ will seek to make amends for harm caused to another (Goodstein and Aquino 2010;
Fehr and Gelfand 2012). Responsibility over the resource allocation decision is likely to make
the performance risk confronted by the agents more salient to the superior. Thus, superiors
responsible for the disparate performance risk encountered by agents through an initial resource
allocation might be more likely to sympathize with the agent that has been disadvantaged due to
the superior’s resource allocation decision, consistent with restorative justice. It would follow
that superiors would therefore show even greater sympathy for the disadvantaged agent in the
bonus allocation decision when charged with resource allocation than without.
Following consistency theories and motivated reasoning, however, superiors might be
inclined to allocate a greater portion of the bonus to the agent to whom they allocated a greater
level of resources. Consistency theories in psychology argue that individuals have a preference to
10
be congruent in behavioral actions, and once an initial action is taken (or a decision made) they
can feel as though similar actions (or decisions) should be followed (Bem 1972; Cialdini, Trost,
and Newsom 1995; Fishbach and Ferguson 2007; Fishbach and Dhar 2008). Studies have also
shown that behavioral consistency can provide emotional benefits and individuals can be
motivated to make congruent future choices to justify initial actions or decisions to reduce
cognitive dissonance between inconsistent actions (Festinger 1957; Cooper and Fazio 1984;
Kunda 1990; Aronson 1997).
Further, individuals can have a preference to maintain their self-esteem and/or enhance
their self-image, which can influence their behavior and decisions (Dunning, Meyerowitz, and
Holtzberg 1989; Kunda 1990; Tayler 2010). When a decision is made, individuals can be biased
to find support for this initial decision and act in accordance to show that the original decision
was appropriate, promoting self-enhancement (e.g., I am good decision-maker) (Luft et al. 2016).
Thus, superiors can potentially be motivated to show less sympathy to the disadvantaged agent
and distribute more of the bonus to the agent to whom they allocated greater resources, to justify
their original allocation decision.
These two posited effects, increased sympathy for the disadvantaged agent versus
justification for the advantaged agent, work contrary to one another, and it is uncertain ex ante
which effect will be stronger for superiors. Due to this uncertainty as to the direction of the effect
of the responsibility to allocate resources which influences performance risk, we state the second
hypothesis as a null in comparison to the behavior examined in H1:
H2: Bonus allocations of superiors with responsibility for initial resource allocation will not differ from those of superiors without this responsibility.
11
Additional Information and Resource Allocation Responsibility
Additional information concerning agents provides superiors with further context with
which to make decisions. Information available through organizational systems and interactions
provides superiors with context concerning agents’ personalities and situations. However, not all
information provided to superiors facilitates equitable decisions or is relevant to all decisions.
Shields (1983) argues that information supplied by accountants can affect superiors’ decisions
and designers of performance systems must be cognizant of this when determining what
information to provide.
It is often assumed that additional information will prove valuable and that management
accounting systems should attempt to provide information whenever feasible. To this end, Maas
et al. (2011) find that when making discretionary decisions superiors will actually incur costs to
seek out information to assist in their decisions. However, it is not automatically the case that
this information is beneficial, relevant, or even useful. Bailey, Hecht, and Towry (2011) examine
the use of noncontractible information in bonus allocations and find that the information tends to
be incorporated into decisions, most commonly by superiors following an anchoring approach in
which they anchor on the information. Further, Luft et al. (2016) find that providing additional
accounting information to superiors and subordinates can affect their decision-making and lead
to greater disagreements concerning organizational decisions and evaluations. Information can
provide individuals with greater opportunity to justify and support their preference or biases.
Thus, the information can be opportunistically interpreted by various parties resulting in
differences in opinion and decisions. In our study, we argue that if superiors are responsible for
resource allocation and information is available at that stage, then this information can bias how
the superior allocates resources, and even affect their future decisions, such as bonus allocations.
12
Evidence shows that early information concerning agents can influence future
evaluations, even when this information loses relevance. Black and Vance (2017) find that an
organization’s initial beliefs about talent can persist to bias future decision-making. Their study
evaluates a context in which perceived talent has a clear relationship with job performance, but
dissipates over time. In reality, early organizational beliefs of talent or skill can be unclear
signals of actual performance. For example, performance in a job interview does not necessarily
dictate an agent’s actual performance, but this information has the potential to establish biases in
the minds of decision makers for future decisions and evaluations. Or, agents might be promoted
from other departments where the required skill set does not necessarily transfer, and hence, the
prior information is not very informative to the current task (Chan 2017). Thus, we posit that
information can influence and potentially bias how superiors allocate resources to agents, and in
turn affect the final bonus allocation decision.
When superiors are faced with the decision of allocating initial resources that are unequal
in nature, thus affecting the performance risk of their agents, they are likely to interpret any
information available as a basis for deciding how to allocate those resources (Gaeth and
Shanteau 1984; Bailey et al. 2011; Ramalingam 2012). Thus, when responsible for initial
resource allocation and the resulting disparate performance risk, we predict that superiors that
have access to information about the agents will assign greater resources (or lower performance
risk) to the agent reflected more favorably by the information.
As presented in the development of H2, individuals can be biased to be consistent in their
actions and motivated to support their previous decisions to support a positive self-view that they
made a good initial decision (Festinger 1957; Cooper and Fazio 1984; Dunning et al. 1989;
Kunda 1990; Aronson 1997; Luft et al. 2016). For this reason, superiors given information that
13
affects their initial resource allocation can seek to be consistent with that decision in their bonus
allocation. As shown in several accounting studies, motivated reasoning can bias individuals
with a desired preference or outcome to support their preference (Kunda 1990; Ditto and Lopez
1992; Hackenbrack and Nelson 1996; Cloyd and Spilker 1999; Kadous, Kennedy, and Peecher
2003; Bonner 2008; Hales 2007; Tayler 2010). Motivated reasoning can affect individuals’
interpretation of information and lead them to overweight preference-consistent evidence to
justify or support their desired outcome (Lord, Ross, and Lepper 1979; Lundgren and Prislin
1998; Kunda 1990; Boiney, Kennedy, and Nye 1997). Thus, with information available,
superiors can be more influenced by motivated reasoning to be further biased toward the
advantaged agent to whom they allocated greater resources, and sympathize even less with the
disadvantaged agent.
With available information, superiors can feel justified in their initial resource allocation
decision and be biased when weighting the information to deem that the resources were ‘earned’
by the advantaged agent due to self-determination rather than luck, and that the superior was
‘correct’ in allocating more resources to the advantaged agent. In turn, superiors will be less
likely to attempt to reconcile any existing inequality between the agents, with the organizational
features of additional responsibilities and information providing context to the superiors in their
role as decision maker. The differential bonus allocation can reaffirm the initial differential in
resources (or likelihood of success), and further promote that the superior made an appropriate
initial decision.
Therefore, we expect that superiors with initial resource responsibility and information
available will allocate more resources to the agent better reflected in the information,
demonstrating their bias from the information. Further, these superiors will show continued bias
14
toward the advantaged agent (allocated greater resources and as a result lower performance risk)
in the allocation of the bonus, be less likely to attempt to reconcile the inequity in the
performance risk encountered by the agents, and sympathize less with the disadvantaged agent
(allocated less resources and as a result greater performance risk). Hence we make the following
two formal hypotheses:
H3a: Superiors with responsibility over the initial resource allocation and information available will allocate lower performance risk to the agent reflected better in the additional information.
H3b: Superiors with responsibility over the initial resource allocation and information available will allocate a greater percentage of the bonus pool to the agent with lower performance risk.
III. Method and Design
Participants and Design
Participants in the experiment are 223 upper-level undergraduate and graduate business
and economics students at a large Midwestern university. Their average age is about 22 years old
(range 19-32) and 61% are female. The experiment took approximately 30 minutes to complete
and participants earned on average about $16.50.2
The experiment has a 2 x 2 between-subjects design with a nested condition. In the
experiment, participants acting as superiors are tasked with allocating a bonus pool between two
agents.3 For this task, we manipulate whether the superior is responsible (or not) for allocating
resources to the agents ex ante (Resp) and the availability of information (Info) to the superior
(Present or Absent). The noted nested condition occurs in the condition in which superiors are
not responsible for resource allocation, but have information available. In this condition, the
2 Approval for the experiment was obtained by the IRB at the institution where the experiment took place.3 The terms superior and agent were never used. To preserve the nature of the abstract nature of the fundamental task participants’ roles were only identified by color: Orange, Blue, and Red.
15
information reflects better on one agent, and this agent is exogenously allocated more resources
(Match) or less resources (No Match) than their fellow agent, as discussed below.
Experimental Task and Procedures
Figure 1 provides a timeline of each experimental session by condition. After arriving in
the lab, participants are informed that the study is split into multiple parts and that the first part
will be administered by a computer program. They then read a set of instructions that relates to a
computerized trivia task. All participants complete this trivia task consisting of twelve multiple
choice trivia questions and a single open-ended question. They receive compensation for their
effort at $0.25 per correct multiple choice response and up to $1.00 for the open-ended response,
depending on the amount of error in the response. Participants view their own scores and all
scores are recorded by the experimenter.
Insert Figure 1 Here
Upon completion of the trivia task, participants receive instructions for the second part of
the experiment describing the allocation task of interest and the corresponding additional
payoffs.4 Participants are informed that for the second part of the study they have been randomly
assigned to a triad group and given a role within that group (i.e., agent or superior). Two
participants in each group act as agents, while the third acts as the superior. Roles are assigned
based on colors (Blue, Red and Orange, where Blue and Red are agents and Orange is the
superior) in order to avoid biasing individuals with the titles agent and superior. It is important to
note, that all color assignments were made prior to the trivia task. Meaning, that the trivia task
performance at no time affected the experimenters’ assignment of participants to conditions. This
is particularly noteworthy in the no responsibility with information condition, in which Blue and
Red (agents) are assigned greater or fewer chips prior to the start of the session, and
4 The instructions identify that the first part of the study is not directly related to the second part.
16
subsequently that color’s advantaged status either does or does not match the information
provided to the Orange participant in the group (superior).
The second task is a lottery in which agents have disparate odds of winning. We
operationalize these odds with a chip draw from twenty chips. Blue and Red chips represent the
odds a given agent solely wins the lottery, while an Orange chip represents the situation in which
they both win the lottery and the final payoff allocation is determined by the Orange member. In
this second task, the superior is tasked with allocating a bonus pool of $25 between the two
agents (with each agent receiving at least $5) in the event an Orange chip is drawn, and a
resource allocation decision for the agents, depending on condition. The superior is informed that
in the second part of the experiment they will receive a fixed payment of $21. This is done to
assure that the superior receives higher compensation than either of the two agents, regardless of
the superiors’ allocation decisions.5 The superior also has no direct stake in the outcome of the
lottery to avoid any bias that would arise from self-interest in the outcome and allows a better
examination of superiors’ perceptions of fairness and equity among agents (Guo et al. 2017).
The instructions explain the roles of the agents and the distribution process of the $25
bonus available. One agent is given, either by the experimenter or the superior, an advantageous
role (greater resources/lower performance risk operationalized as more chips for the lottery),
while the other is disadvantaged (lesser resources/higher performance risk operationalized by
less chips for the lottery) to provide a difference in performance risk. All participants are
informed that the advantaged agent has a higher likelihood of receiving the majority of the
payout based on a lottery, and that each agent is guaranteed to receive at least $5 of the payout
from this part of the experiment.6 The specific payoffs are as follows; the advantaged agent has a 5 While this compensation scheme may bias against our results, it controls for empathy overtaking sympathy (i.e., had we paid the superior $5, they may empathize with the agent more likely to receive only $5), and better operationalizes the role of a superior. 6 To avoid biasing agents, we never use the word advantaged or disadvantaged.
17
50% probability of solely winning the lottery by having his/her colored chip drawn (achieving
the bonus target) and receiving a final payoff of $20, with the disadvantaged agent receiving $5.
The disadvantaged agent, on the other hand, has a 25% probability of solely winning the lottery
by having his/her colored chip drawn and receiving a final payoff of $20, with the advantaged
agent receiving $5. Finally, there is a 25% probability that both will win the lottery and the
allocation of the $25 payout will be left to the discretion of the superior.
We manipulate whether superiors are responsible (Resp) for the initial resource allocation
for the agents and have information available (Info). Each superior in the Resp conditions
decides which agent is given the advantageous resource allocation (i.e., a higher probability of
winning the lottery). After these superiors make the resource allocation decision, their respective
agents are informed of their probability of winning the lottery (allocation of resources). In the No
Resp conditions all participants are informed that the advantageous resource allocation was
assigned to either Blue or Red before the experiment. In the Info conditions, the superior is
informed of which agent performed better in the trivia task, noted as either Blue or Red.7, 8 Actual
scores are not revealed to the superior to avoid divulging how much the agents earned from the
first part of the experiment. In the No Info conditions, no agent information from the trivia task is
shared with the superior at any point.
Once the agents have been allocated their roles (level of resources, advantageous or
disadvantageous), and prior to the determination of the lottery outcome, the superior makes a
bonus allocation decision in the event that both agents win the lottery (i.e., both achieve the
7 This is determined by the agent who answered more of the multiple choice questions correctly. If there is a tie, the agent with the least degree of error in the open-ended question is designated as the higher performer. All roles, including Blue and Red, are assigned before the trivia task but disclosed to participants after the trivia task.8 Performance on the trivia task does not affect the assigned roles of the participants nor does it affect the size of the bonus pool, thus making it irrelevant to the bonus allocation decision.
18
target necessitating discretion over the bonus allocation). 9 This information is then presented to
the agents so they are aware of the amount they will earn if both agents ‘win’ the lottery. Once
all superiors have made their bonus allocation decision, the outcome is randomly determined by
a lottery draw (a colored chip drawn by hand). Participants then complete a post-experimental
survey prior to receiving their payment.
The main dependent variable of interest is the difference in the bonus allocation between
the disadvantaged and advantaged agent. This variable is noted as Sympathy to illustrate the
extent to which the superior sympathizes with the disadvantaged agent. As the superior has no
discretion over the size of the bonus pool, the superior must allocate all $25 of the bonus pool
between the two agents (with the stipulation that each agent receive at least $5). A positive
Sympathy allocation shows a higher allocation to the disadvantaged agent and a negative
Sympathy allocation shows a higher allocation to the advantaged agent. For example, if the
disadvantaged agent is allocated $15 and the advantaged agent is allocated $10, then the
Sympathy allocation would be $5, showing a higher allocation to the disadvantaged agent. If the
disadvantaged agent is allocated $10 and the advantaged agent is allocated $15, then the
Sympathy allocation would be -$5, showing a higher allocation to the advantaged agent. As each
agent receives at least $5, this variable can range from -$15 (high allocation to advantaged) to
$15 (high allocation to disadvantaged), with $0 representing an equal split of the bonus.
IV. Results
We argue that when agents have disparate performance risk, absent of contextual features
common in organizational decisions (No Resp/No Info), superiors will ‘sympathize’ with the
disadvantaged agent and allocate a greater portion of the bonus pool to this agent with more
9 Given the potentially resource draining nature of requiring four times the number of participants based on lottery probabilities, we employ the strategy method to assure an observation from each superior. The strategy method has been widely used in behavioral economics papers (see Brandts and Charness 2011).
19
performance risk. Descriptive statistics of Sympathy and overall bonus allocation type are shown
on Tables 1 and 2.
Insert Tables 1 and 2 Here
For those superiors who do not have responsibility for initial resource allocation (i.e.,
who are making the decision devoid of broader organizational context) or available information,
the difference in bonus allocation (Sympathy) between the disadvantaged and advantaged agent
is 5.19, which is significantly greater than zero (p < 0.01, one-tailed). This significantly positive
Sympathy allocation shows that a greater proportion of the bonus pool is allocated to the
disadvantaged agent, supporting H1. Further, superiors in this condition allocate a bonus that is
biased toward the disadvantaged agent 10 out of 16 times (63%), but only one superior allocates
more of the bonus to the advantaged agent (6%), with the remaining allocations being equal-
splits. A Chi-square test shows this difference to be significant, further supporting H1 (Pearson
Chi-square = 11.22, p < 0.001, one-tailed). Thus, with disparate performance risk but without
other organizational contextual features, superiors sympathize, through a higher bonus
allocation, with those agents facing greater performance risk.
Resource Allocation Responsibility
We posit that if superiors have the responsibility to allocate resources to agents as part of
their role within the organization (Resp/No Info), directly affecting agents’ performance risk,
then this initial decision will likely influence their subsequent bonus allocation. These superiors
might sympathize even more with the disadvantaged agent through a higher bonus allocation, as
the higher performance risk for this agent is linked to the superior’s decision. However, superiors
might also be biased to be consistent with and justify prior decisions, which would reduce the
allocation of the bonus to the disadvantaged agent and increase the allocation to the agent to
20
whom the superior decided to provide more resources. Therefore, with H2 we test a null
hypothesis compared to our baseline performance in our first condition used to test H1, due to
the lack of an ex ante directional prediction.
When superiors have responsibility over the initial resource allocation, without available
information, the average Sympathy is 4.00, which is significantly greater than zero (p = 0.01,
two-tailed), providing initial evidence that with responsibility for initial resource allocation
superiors still sympathize overall with the disadvantaged agent in the bonus allocation. To test
our specific hypothesis, however, we compare Sympathy for superiors responsible for initial
resource allocations to that of superiors without this responsibility to provide insight on how the
two factors of sympathizing with the disadvantaged agent and justifying the initial resource
allocation affect superiors’ bonus allocations. We find no significant difference in how superiors
with initial resource allocation responsibility (Resp/No Info) allocate the bonus pool compared to
those without this responsibility (No Resp/No Info) (4.00 < 5.19, p = 0.57, two-tailed).
In a post-experimental question we capture the extent to which superiors felt they were
responsible for correcting the inequity between the agents, and find that this variable,
CorrectInequity, differs between conditions.10 We again test the difference in how superiors
allocate the bonus pool between the Resp/No Info and No Resp/NoInfo conditions, controlling for
CorrectInequity, and find that superiors with initial resource allocation responsibility are
(marginally) less sympathetic to the disadvantaged agent (p = 0.07, two-tailed, Sympathy
marginal means = 2.93 < 6.33).11 Further, while the difference is not statistically significant
(Pearson Chi-square = 1.01, p = 0.32, two-tailed), superiors in the Resp/No Info condition
allocate a bonus biased toward the advantaged agent 3 out of 17 times (18%) compared to only 1
10 Participants respond with their agreement on a 9-pt Likert scale to the statement, “I was responsible for correcting the inequity of the other group members.”11 Controlling for CorrectInequity does not affect the inferences from our other tests.
21
out of 16 times (6%) in the No Resp/No Info condition. Combined, these results suggest that
superiors with initial resource allocation responsibility still sympathize with the disadvantaged
agent to whom they allocated less resources, and provide insight as to the relative effects of
restorative justice and consistency on superiors’ bonus allocations. There is no support for the
restorative justice prediction, that superiors will become more sympathetic to disadvantaged
agents. However, superiors’ sympathy for the disadvantaged agent is potentially reduced, in line
with superiors having some desire to be consistent with their initial decisions, offering some
support for consistency theory.
Additional Information and Resource Allocation Responsibility
We argue that the presence of potentially biasing information not only affects superiors’
initial resource allocation directly, but this information subsequently affects the bonus allocation
decision. We first predict that if superiors have information about the agents, then they will
allocate more resources to the agent that is better reflected in the information. We find evidence
supportive of this prediction (H3a). In our study, when superiors with initial resource allocation
responsibility view information about the agents, they allocate greater resources (and thus less
performance risk) to the agent reflected better, 13 out of 18 times. A Chi-square test shows that
this 72% likelihood is significantly greater than random (Pearson Chi-Square = 3.56, p = 0.03,
one-tailed), supporting H3a. Thus, we provide evidence that information can affect superior
allocation decisions prior to the bonus allocation, and we argue that this will affect the final
bonus allocation of the superior.
We predict that with the responsibility for the initial resource allocation and information
about the agents (Resp/Info), superiors will allocate a greater proportion of the bonus pool to the
advantaged agent with less performance risk. We demonstrate that these superiors are inclined to
22
allocate more resources to the agent better reflected in the information, and we argue that this
information provides justification for the superior to be consistent with their initial decision to
show that it was a good decision. Superiors in the Resp/Info condition have a Sympathy
allocation of -0.83, showing a slight preference for the advantaged agent. More directly,
however, these superiors allocate a greater proportion of the bonus to the advantaged agent 11
out of 18 times (61%), and only allocate a greater proportion to the disadvantaged agent 4 out of
18 times (22%), with the remaining allocations being an equal split. This difference is
statistically significant (Pearson Chi-square = 5.60, p = 0.01, one-tailed), supporting H3b.
We further compare the bonus decisions of superiors with initial resource allocation
responsibility and information about the agents (Resp/Info) to those without initial resource
allocation responsibility or information about the agents (i.e., No Resp/No Info, our baseline
condition) and those with only initial resource allocation responsibility (Resp/No Info), to
provide further support for H3b. Sympathy for superiors in the Resp/Info condition (-0.83) is
significantly less than that for superiors in the No Resp/No Info (5.19) and the Resp/No Info
(4.00) conditions, (ps < 0.01, one-tailed). Further, the 61% likelihood of superiors in the
Resp/Info condition to allocate a greater bonus to the advantaged agent is significantly greater
than for superiors in the No Resp/No Info (6%) and the Resp/Info (18%) conditions (ps < 0.001,
one-tailed).
We also analyze superiors’ perceptions of distributional fairness and decision justification
to further support our prediction. For these tests, we combine the No Resp/No Info and the
Resp/No Info conditions to compare them in aggregate to the Resp/Info condition. Table 3
provides descriptive statistics for superiors’ responses concerning who they felt more sympathy
towards, who was entitled to a higher payout, and how justified they felt in their allocation of the
23
probability of winning the lottery (allocation of chips – resources). We find that superiors with
initial resource responsibility and information about the agents sympathize more with the
advantaged agent (3.89 > 3.06, p = 0.08, one-tailed) and believe the advantaged agent is more
entitled to a higher payoff (6.33 > 4.85, p < 0.001, one-tailed) than those without both resource
responsibility and information about the agents. Further, these superiors feel more justified in
their probability allocation (6.88 > 5.88, p = 0.05, one-tailed), which could provide a belief that
they have more flexibility to allocate a greater bonus to the advantaged agent.
Insert Table 3 Here
Overall, these results strongly support H3b and demonstrate that information about the
agent can influence early allocation decisions, which ultimately affect superiors’ bonus
allocations. Specifically, superiors with initial resource allocation and information about the
agents seek to justify their initial resource allocation decision by allocating more of the bonus to
the agent to whom they allocated more resources (and less performance risk).
Supplemental Analyses
Additional Information without Resource Allocation Responsibility
As explained in the methods section, the experiment has a 2 x 2 between-subjects design.
In the No Resp/Info condition we have a nested design. Specifically, the superior receives
information about the agents and is responsible for the bonus decision, but not the initial resource
allocation decision.12 We label the nested conditions as Match/No Match conditions. In the
Match condition, superiors receive information that supports the resource allocation decision, in
that the agent who is advantaged in Task 2 is also reflected better in the information about
performance in Task 1. Conversely, in the No Match condition, superiors receive information 12 The information used in our study shares qualities with irrelevant information in prior experimental studies (e.g., Ramalingam 2012). Consistently, at no time did we indicate to participants that this task had implications for future decisions, nor did we use this information to determine participants’ roles, allocated resources, or likelihood of winning the lottery.
24
that the agent who is disadvantaged in Task 2 is actually reflected better in the information about
performance in Task 1.13 In our sample, 17 (16) superiors viewed information with the
disadvantaged (advantaged) agent reflected better, and thus we use this split to test whether
information is symmetric in its effect.14
When superiors view the disadvantaged agent reflected better by the available
information (No Match), their average Sympathy is 3.65, which is significantly greater than zero
(p < 0.001, two-tailed), illustrating a higher bonus allocation to the disadvantaged agent. Further,
these superiors allocate more of the bonus pool to the disadvantaged agent 14 out of 17 times
(82%), with the remaining allocations of an equal split (not one of these superiors allocated a
majority of the bonus to the advantaged agent). Thus, superiors in the No Match condition are
biased toward the disadvantaged agent in the bonus allocation who was reflected better in the
available information, despite being assigned to the higher performance risk.
Conversely, when the advantaged agent is reflected better in the provided information
(Match), then superiors’ average Sympathy is -0.50, which is significantly less than that for
superiors who view information with the disadvantaged agent reflected better, (p = 0.02, one-
tailed). This result provides evidence that upon viewing information that reflects better on the
advantaged agent, superiors allocate comparatively more of the bonus to the advantaged agent.
The bonus allocation pattern of these superiors is also much different than those who view the
disadvantaged agent reflected better. Superiors who view the advantaged agent reflected better
allocate a higher bonus to the advantaged agent 10 out of 16 times (63%) compared to no
13 In keeping with the nature of the design that Task 1 is independent from Task 2, we predetermine the advantaged/disadvantaged color (Blue and Red). Therefore, we allow the information to naturally match or not match the resource allocation dependent on performance of the agent of that color. 14 For those superiors who receive additional information without having responsibility over the initial resource allocation, the average Sympathy allocation is 1.64, which is marginally different from zero (p = 0.10, two-tailed), showing that these superiors slightly sympathize with the disadvantaged agent with greater performance risk. However, when these superiors are separated by whether the additional information available matches the resource allocation (Match/No Match), there is a significant difference in their allocation decisions.
25
allocations of this kind made by superiors who view the disadvantaged agent reflected better.
Further, only 6 out of 16 times (37%) do superiors who view the advantaged agent reflected
better allocate more of the bonus to the disadvantaged agent, compared to 82% of the times for
those who view the disadvantaged agent reflected better, and this difference is significant
(Pearson Chi-square = 6.95, p < 0.01, one-tailed). Thus, we find that superiors are heavily
influenced in their bonus allocation decisions by information about the agents that does not
pertain to the task or decision at hand.
Fairness/Satisfaction Perceptions of Agents
Our study focuses on how superiors’ bonus allocations are affected by additional decision
responsibility and available information when their agents’ have disparate performance risk, but
we also gather measures for the potential effect that these allocation decisions can have on the
agents. Following the lottery and after the bonus allocation was determined, the Blue and Red
participants (agents) are asked to rate their agreement on 9-pt Likert scales to the statements, “I
believe I was paid fairly”, “I was satisfied with the process” and “I was satisfied with how the
ORANGE group member decided to distribute the $25 payoff” (end points of 1 = Strongly
Disagree and 9 = Strongly Agree). We use these ratings to evaluate the differences in fairness
and satisfaction perceptions between the disadvantaged and advantaged agents depending on
whether the superior has resource allocation responsibility and/or information about the agents.
PaidFairlyDiff, SatisfiedProcessDiff and SatisfiedAllocationDiff are calculated in a similar way
to BonusDiff, by taking the disadvantaged agent’s rating less that of the advantaged agent. Thus,
a positive difference demonstrates a higher fairness/satisfaction rating from the disadvantaged
agent and a negative difference demonstrates a higher fairness/satisfaction rating from the
advantaged agent.
26
In the No Resp/No Info condition, there is no significant difference between the
disadvantaged and advantaged agents’ fairness/satisfaction ratings, as the differences are not
significantly different from zero (PaidFairlyDiff = -0.60, SatisfiedProcessDiff = -0.70, and
SatisfiedAllocationDiff = 0.60, ps > 0.10, two-tailed). When the superior has responsibility over
resource allocation (Resp/No Info), then the advantaged agent has a higher perception of fairness
in pay and is more satisfied with the process, as the differences are significantly less than zero
(PaidFairlyDiff = -2.58, p < 0.01 and SatisfiedProcessDiff = -2.17, p = 0.03, both two-tailed),
but there is no difference in satisfaction with the payoff allocation (SatisfiedAllocationDiff = -
0.42, p > 0.10, two-tailed). Finally, when the superior is given responsibility over resource
allocation and additional information, then the advantaged agents believe they are more fairly
paid and are significantly more satisfied with both the process and the payoff allocation
(PaidFairlyDiff = -1.93, p = 0.06, SatisfiedProcessDiff = -2.93, p = 0.01, and
SatisfiedAllocationDiff = -2.07, p = 0.04, all two-tailed). These results provide some evidence
that a superior having responsibility over resource allocation and additional information in the
bonus allocation process can lead to differences in perceptions of fairness and satisfaction
between agents.
In H3, we argue that with resource allocation responsibility and available information,
superiors will be less sympathetic toward the disadvantaged agent and more favorable toward the
advantaged agent. Thus, we posit that the advantaged agents in the Resp/Info condition will feel
more fairly paid and be more satisfied with the bonus allocation process and outcomes. We find
no significant differences in fairness/satisfaction ratings between the No Resp/No Info and
Resp/No Info conditions (ps > 0.10, two-tailed), and hence, in line with our analysis of superiors’
perceptions, we combine the No Resp/No Info and the Resp/No Info conditions to compare them
27
in aggregate to the Resp/Info condition. The results provide directional support that the superior
having resource allocation responsibility and available information leads to higher fairness and
satisfaction ratings from the advantaged agents. Even though directionally consistent, we find no
significant difference in PaidFairlyDiff (-1.93 vs. -1.68, p = 0.41, one-tailed), but there is a
marginal difference in SatisfiedProcessDiff (-2.93 vs. -1.50, p = 0.10, one-tailed) and a
significant difference in SatisfiedAllocationDiff (-2.07 vs. 0.05, p = 0.03, one-tailed).
In summary, we find no disparity in fairness/satisfaction perceptions between
disadvantaged and advantaged agents when the superior does not have resource allocation
responsibility or available information. However, we provide some evidence that when superiors
have resource allocation responsibility and information about the agents, it can lead to
differences in fairness and satisfaction perceptions between disadvantaged and advantaged
agents. With these factors, advantaged (disadvantaged) agents feel more (less) fairly treated and
more (less) satisfied with the bonus allocation process. Disparity in fairness and satisfaction can
potentially lead to adverse motivational effects to those agents with lower fairness/satisfaction
perceptions (Asay, Garrett and Tayler 2017). Thus, our measures provide evidence of
implications on performance given superiors are less sympathetic to disadvantaged agents and
favor more advantaged agents.
V. Conclusion
This study examines how superiors behave when confronted with bonus allocation
decisions in an environment of disparate performance risk amongst agents. There is a paucity of
research in the literature focused on the behavior of superiors concerning incentive
compensation. Our findings address this gap, and provide insight into decision making by
superiors in the incentive compensation process when afforded discretion. Specifically, we show
28
how disparate performance risk can affect superiors’ bonus allocations for their agents, and how
organizational context, specifically additional decision responsibility and available information,
further influence these bonus allocation decisions. We find that behavioral predictions of an
aversion to disparity in performance risk hold, particularly in cases of non-biasing information.
Specifically, superiors, absent organizational context, show sympathy toward agents that are
confronting greater levels of performance risk by increasing the bonus allocation these agents
receive. However, this behavior is affected by biases that can be introduced by other decision
responsibilities of and available information for superiors that comes with the added context of
making decisions within an organization.
We show that sympathy toward the disadvantaged agent does not increase when the
superior has responsibility for an initial resource allocation that affects the disparate performance
risk of agents contrary to a restorative justice prediction, and is potentially reduced, in line with
superiors having some desire to be consistent with their initial decisions. Further, when
information is available for resource allocation, superiors are biased to further reward
advantaged agents, who already have less performance risk, through a greater bonus allocation. It
is often assumed that additional information improves decision-making, but we provide evidence
that providing information concerning agents to superiors can bias their decisions that directly
affect their agents.
Our evaluation of superiors’ allocation decisions and behavior can also potentially
provide insight to ex post motivational effects that can affect agents’ perceptions of fairness and
their subsequent motivation and performance. Most studies that examine discretionary bonus
allocation focus on the within-period effort/motivational effect on agents. It is important to
evaluate ex post effects on agents as they can be unsure ex ante about their superior’s intentions
29
given discretion over bonus allocations, but following the superior’s allocation decision, the
agent obtains new information, which can affect their beliefs about the superior and potentially
their motivation ex post. Further, we provide evidence that the superior having resource
allocation responsibility and information about the agents can lead to disparity in agents’
fairness/satisfaction perceptions, with disadvantaged agents feeling less fairly treated and less
satisfied.
As with any experimental study, care should be taken when attempting any
generalizations. However, we argue that the underlying phenomenon of sympathy, consistency,
and bias from information are pervasive constructs in human decision making, and that these
behavioral tendencies can exhibit themselves at all levels of an organization and in various
settings. Future research could examine the underlying predictions pertaining to these types of
allocation decisions in suitable field, case, or archival studies. Future research can also build on
the organizational context and behaviors that affect decisions, including disparate risk related to
employee’s actions or demographics including effort, training, education, etc.
30
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Figure 1Timelines of Experimental Session (by condition)
No Resp/ Resp/ Resp/ No Resp/ No Resp/ No Info No Info Info Info (Match) Info (No Match)
35
Trivia Task – 12 MC questions and
open ended question
Instructions for Lottery Task –
Included quiz to check understanding
Superior receives agents’ performance
information from Trivia Task
Superior assigns agents’
probability of $20 bonus
(5:20 vs. 10:20)
Superior determines
bonus allocation given occurrence of Orange draw
Orange, Blue or Red chip is drawn from
20 chips
Participants complete post-
experimental quiz
Participants are paid in cash upon conclusion of
session
Trivia Task – 12 MC questions and
open ended question
Trivia Task – 12 MC questions and
open ended question
Trivia Task – 12 MC questions and
open ended question
Trivia Task – 12 MC questions and
open ended question
Instructions for Lottery Task –
Included quiz to check understanding
Instructions for Lottery Task –
Included quiz to check understanding
Instructions for Lottery Task –
Included quiz to check understanding
Instructions for Lottery Task –
Included quiz to check understanding
Superior receives agents’ performance
information from Trivia Task
Superior receives agents’ performance
information from Trivia Task
Superior assigns agents’
probability of $20 bonus
(5:20 vs. 10:20)
Superior determines
bonus allocation given occurrence of Orange draw
Superior determines
bonus allocation given occurrence of Orange draw
Superior determines
bonus allocation given occurrence of Orange draw
Superior determines
bonus allocation given occurrence of Orange draw
Participants complete post-
experimental quiz
Participants complete post-
experimental quiz
Participants complete post-
experimental quiz
Participants complete post-
experimental quiz
Orange, Blue or Red chip is drawn from
20 chips
Orange, Blue or Red chip is drawn from
20 chips
Orange, Blue or Red chip is drawn from
20 chips
Orange, Blue or Red chip is drawn from
20 chips
Participants are paid in cash upon conclusion of
session
Participants are paid in cash upon conclusion of
session
Participants are paid in cash upon conclusion of
session
Participants are paid in cash upon conclusion of
session
Agents are randomly assigned their
probability of $20 bonus
(5:20 vs. 10:20) Info DOESN’T MATCH
probability
Agents are randomly assigned their
probability of $20 bonus
(5:20 vs. 10:20) Info MATCHES probability
Agents are randomly assigned their
probability of $20 bonus
(5:20 vs. 10:20)
Table 1Superiors Bonus Allocation Differences By Condition
Panel A: Descriptive Statistics of Bonus Allocation Differences (Sympathy)
Sympathya
(Disadvantaged Bonus - Advantaged Bonus)
No Info Info 5.19 1.64 No Resp (6.47) (5.61) n = 16 n = 33 4.00 (0.83)Resp (5.23) (5.75) n = 17 n = 18
Panel B: No Resp/Info Condition Bonus Allocation Differences (Sympathy) Split by the Agent Reflected Better by the Information Available
Sympathy(Disadvantaged Bonus - Advantaged Bonus) No Resp/Infob
Disadvantage
d 3.65 Reflected
Better (4.39) n = 17
Advantaged (0.50)Reflected
Better (6.09) n = 16
a Sympathy is calculated as the bonus allocated to the disadvantaged agent less the bonus allocated to the advantaged agent. A positive Sympathy amount denotes a greater bonus allocation to the disadvantaged agent and a negative Sympathy amount denotes a greater bonus allocation to the advantaged agent.
b We separate the No Resp/Info condition, as it is a nested condition. In this condition, superiors are not responsible for resource allocation, but have information available. The information available reflects better on one agent, and this agent is exogenously allocated more resources (advantaged agent, Match) or less resources (disadvantaged agent, No Match) than their fellow agent.
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Table 2Type of Superiors’ Bonus Allocations by Condition
Type of Bonus Allocationsa
Greater Portion
Greater Portion
Disadvantaged Advantaged Equal Split Total No Resp/No Info 10 1 5 16 No Resp/Infob Disadvantaged 14 0 3 17 Advantaged 6 10 0 16 Resp/No Info 11 3 3 17 Resp/Info 4 11 3 18
a The type of bonus allocation is noted as which agent, disadvantaged or advantaged, was allocated a greater portion of the bonus pool. If the allocation was equal, then the type of bonus allocation is noted as an equal split.
b We separate the No Resp/Info condition, as it is a nested condition. In this condition, superiors are not responsible for resource allocation, but have information available. The information available reflects better on one agent, and this agent is exogenously allocated more resources (advantaged agent, Match) or less resources (disadvantaged agent, No Match) than their fellow agent.
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Table 3Descriptive Statistics – Superiors’ Perceptions of Fairness and Justification
No Resp/Respa
No InfoResp Info
More Sympathy b
3.06 (1.41) n = 33
3.89 (2.19) n = 18
More Entitled to
Payoff c
4.85 (1.68) n = 33
6.33 (2.11) n = 18
Justified in Chip
Allocation d
5.88 (2.00)
n = 17 e
6.88 (1.41) n = 17
a We combine ratings from the No Resp/No Info and Resp/No Info conditions to compare them in aggregate to the ratings from the Resp/Info condition.
b More Sympathy is a rating to the question of “Who did you have more sympathy for?” on a 9-pt Likert scale with end caps as “Person with 5 chips” and “Person with 10 chips”. A higher rating shows less sympathy to the disadvantaged agent.
c More Entitled to Payoff is a rating to the question of “Who was more entitled to a higher payoff?” on a 9-pt Likert scale with end caps as “Person with 5 chips” and “Person with 10 chips”. A higher rating shows that the advantaged agent is more entitled to the higher payoff.
d Justified in Chip Allocation is a rating to the statement of “I felt justified in my decision of the number of chips to allocate to the other group members” on a 9-pt Likert scale with end caps of “Strongly Disagree” and “Strongly Agree”.
e The sample size for ‘Justified in Chip Allocation’ is reduced as participants in the No Resp/No Info condition did not make a chip allocation decision. Thus, the 17 observations are only from the Resp/No Info condition.
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Table 4Descriptive Statistics – Difference in Agents’ Perceptions of Fairness and Satisfaction
No Resp No Info
Resp No Info
No Resp/Respa
No InfoResp Info
Paid Fairly
Differenceb
<0.60> (3.34) n = 10
<2.58> (2.19) n = 12
<1.68> (2.88) n = 22
<1.93> (3.52) n = 14
Satisfied Process
Differencec
<0.70> (3.16) n = 10
<2.17> (3.07) n = 12
<1.50> (3.13) n = 22
<2.93> (3.22) n = 14
Satisfied Allocation Differenced
0.60 (2.95) n = 10
<0.42> (3.37) n = 12
<1.35> (3.15) n = 22
<2.07> (3.36) n = 14
a We combine ratings from the No Resp/No Info and Resp/No Info conditions to compare them an aggregate to the ratings from the Resp/Info condition.
b Paid Fairly Difference is the difference in agreement ratings between the disadvantaged and advantaged agents to the statement “I believe I was paid fairly”, on a 9-pt Likert scale with end caps as “Strongly Disagree” and “Strongly Agree”. A positive (negative) difference shows a higher rating from the disadvantaged (advantaged) agent.
c Satisfied Process Difference is the difference in agreement ratings between the disadvantaged and advantaged agents to the statement “I was satisfied with the process”, on a 9-pt Likert scale with end caps as “Strongly Disagree” and “Strongly Agree”. A positive (negative) difference shows a higher rating from the disadvantaged (advantaged) agent.
d Satisfied Allocation Difference is the difference in agreement ratings between the disadvantaged and advantaged agents to the statement “I was satisfied with how the ORANGE group member decided to distribute the $25 payoff”, on a 9-pt Likert scale with end caps as “Strongly Disagree” and “Strongly Agree”. A positive (negative) difference shows a higher rating from the disadvantaged (advantaged) agent.
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