Rank-order tournaments with safeguards: Experimental evidence on workplace (de-)motivation

Many organizations use rank-order tournaments, despite drawbacks such as low payments for high-achieving but low-ranked workers. In this regard, organizations can protect workers by providing 'safeguards'; i.e., guaranteed minimum payments. In this paper, we experimentally study rank-order tournaments when safeguards are available. We observe that a large majority of workers obtains these safeguards, even at a cost. However, we find that safeguards hurt workers and the organization. This is because workers who obtain safeguards perform worse than workers who do not obtain safeguards and overall average performance drops when safeguards are available. These findings provide evidence that giving workers the choice to soften tournament incentives backfires.