The Incentive Effects of Tournament Compensation Systems

Abstract

Brian E. Becker and Mark A. Huselid State University of New York at Buffalo Tournament models have developed into an important component of the theoretical literature on organizational reward systems. However, with one exception there have been no empirical tests of the incentive effects of tournament models in a field setting. Drawing on a panel data set from auto racing, we show that the tournament spread (prize differential) does have incentive effects on both individual performance and driver safety, that these effects peak at higher spreads, and that controlling for the dollar value of the tournament spread, the prize distribution has little influence on individual performance.