Variable prizes in forced-distribution-systems: a sabotage-reducing approach?

Abstract

Forced-Distribution-Systems (FDS) have many indisputable benefits (such as identification of high potential and low performers or incentive effects to exert higher efforts). However, many companies take a critical stance toward FDS, one of the main reasons being the agents' incentive to execute sabotage activities. While a large number of tournament studies deal with the problem of sabotage, to be best of my knowledge none of the studies investigates the impact of variable tournament prizes on sabotage activities. Variable prizes are a special tournament design where prizes are not fixed in advance, but are a function of a target variable set by the principal (see Güth et al. 2010). In this study, I theoretically analyze if variable tournament prizes can help in reducing sabotage activities in FDS. Two versions of variable prizes are considered for this study: variable prize levels and variable prize distribu- tions. In the former version, prize levels depend on the cumulative output (higher the output, higher the prize levels), and in the latter version, prize distribution depends on the cumulative output (higher the output, higher the portion of prizes for the winner and lower the portion of prizes for the loser). The findings of the model are as follows: Variable tournament prizes not only reduce sabotage activities effectively, but also incentivize agents to exert helping activities. Accordingly, variable tournament prizes could be of high importance in organizational practice.