Exploring Optimal Wage Incentive System Using ABS

Abstract

Players are motivated by social norms and morale to exert extra efforts in a work place with high morale. However, we often observe that the initially high performance of an organization gradually declines. In order to seek for an optimal wage incentive system, we have constructed an agent-based model with a small group of heterogeneous or homogeneous workers. The model has the following features: players’ behavior is subject to random shocks; inertia effect is introduced; and players are rewarded on the basis of their performances. The virtual experiment demonstrates that an organization, consisting of homogenous players, is more viable against the erosion than that with heterogeneous players, and that an organization with homogenous players is far more vulnerable to the erosion than that with heterogeneous players when subject to random shocks. Interestingly, an organization with heterogeneous agents can enjoy high morale among players that allows them to maintain high performance. We also show that the reward incentive is remarkably effective in any organization and it is particularly powerful in homogenous organizations. We have compared the two personnel rating systems: one based upon the level of performance relative to other workers’ contemporaneous ones and the other upon her own past performance. In inducing higher performance of the workers, the latter system excels the former for the heterogeneous organization, whereas the former system will outperform for the homogeneous one.