It’s What You Say Not What You Pay. An Experimental Study of Manager-Employee Relationship in Overcoming Coordination Failure.

• Authors: Jordi Brandts.
• BSE Working Paper: 112230 | September 15
• Keywords: experiments , Incentives , Coordination , Organizations , Change , Communications
• JEL codes: C92, D23, J31, L23, M52
• experiments
• Incentives
• Coordination
• Organizations
• Change
• Communications

We study manager-employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In the absence of managerial intervention subjects invariably slip into coordination failure. To overcome a history of coordination failure, managers have two instruments at their disposal, increasing employees’ financial incentives to coordinate and communication with employees. We find that communication is a more effective tool than incentive changes for leading organizations out of performance traps. Examining the content of managers’ communication, the most effective messages specifically request a high effort, point out the mutual benefits of high effort, and imply that employees are being paid well.