Altruism, Conformism, and Incentives in the Workplace

Performance pay can motivate employees, but money is not the only motivation in the workplace. Altruism, which means that someone enjoys the well-being of someone else, can also provide a powerful motivation. The first part of this thesis studies theoretically how altruism between an employee and his superior affects the optimal use of monetary incentives. Among others, the analysis reveals how altruism influences the credibility of monetary incentive schemes, and how altruistic managers can be prevented from being lenient in evaluating employee performance. The second part of this thesis focuses on motivation stemming from the desire to conform to social norms. I develop a theoretical model in which it is assumed that norms for employees are affected by the example of superiors. The analysis sheds light on how superiors take the norm-setting aspect of their behavior into account, and derives implications for the optimal design of organizations.