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.

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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’

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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.

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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.

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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

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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

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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

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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

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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.

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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.

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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

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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

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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.

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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.

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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.

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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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