In a recent study, Eric Chan (UT Austin), Steven Kachelmeier (UT Austin) and FJRG affiliate Xinyu Zhang (Cornell) found that when employers reward people for spending longer hours on the job, both high- and low-ability employees view their compensation as unfair and end up reducing their effort as a result. In particular, high-ability employees resent the fact that low-ability employees simply “put in the hours” and collect the same pay, while low-ability employees can “free-ride” on their high-ability coworkers. As a result, even though input-based pay (e.g., a salary or hourly wage) increases working hours, it reduces both effort intensity and overall productivity.

The full-text paper, published in The Accounting Review, is available at: https://doi.org/10.2308/TAR-2018-0097