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Performance pay, Managerial decision-making, Egalitarianism, Managerial psychology, Evolutionary psychology
I advance a behavioral account of managers’ performance pay decisions that is grounded in evolutionary psychology. In doing so, I seek to explain a common organizational phenomenon — compression in employees’ merit pay bonuses. My behavioral account puts forward two propositions. First, that compression in awards is a consequence of a fundamental human proclivity for egalitarianism. Second, that individual managers will differ in their preferences for egalitarianism: In any given organizational context, some managers will tend to be more egalitarian than other managers. Consistent with these propositions, I observe two clear patterns in how federal managers distribute performance pay awards to the group members they supervise. The first is a marked tendency for managers to give all group members awards of the same or similar size. The second is a considerable amount of between-manager variation in this tendency that cannot be explained by relevant group-level variables, such as group size and occupational diversity. To the extent feasible given my data, I probe whether my behavioral account does a better job explaining these patterns than plausible alternative explanations that are based in economics. One key implication of my theory and findings is that organizations cannot count on managers to aggressively differentiate between individual employees when they distribute performance pay awards. A second key implication is that organizations cannot rely on their managers to uniformly implement a given performance pay plan.