Wage Negotiation, Employee Effort, And Firm Profit Under Output-based Versus Fixed-wage Incentive Contracts

Employee performance is an important aspect to affect corporate performance in thedaily production and business activities of Chinese enterprises. And corporate performance isdirectly linked to the level of corporate profits. How to improve the performance ofemployees to create more profits for the company is an important thing for the long-termdevelopment of the enterprise. Therefore, to identify factors that affect employee performanceis imperative. Only know the factors that affect employee performance, enterprise can takeappropriate measures to motivate employees to work harder.Many domestic and international studies have pointed out on wage negotiations: allowsan employee to negotiate wage and to participate in the company’s decision-making process,which are positive correlation with the increase in staff effort, and also can increase the staff’ssense of fairness for procedural. But studies about whether allow employees to conduct wagenegotiations in different wage contracts and wage negotiation variables can be included in theeconomics are rarely. This article studies wage negotiation which is an important factor thataffect the efforts of the staff, and investigates the choice behavior of employees in differentwage contract.We adopt the experimental method which is based on agency theory and behavioraleconomics reciprocity theory, and test wage negotiations in two different wage contract howto effect staff effort and company profits. In views of the different nature of fixed wagecontract and performance wage contract, the selection behavior of employees in the samesample will be different. Therefore, we draft two different contracts to inspect the effect ofwage negotiation to staff efforts and company profits.Experiments of this article draws the idea “gift exchange " of Fehr, the main object is84MBA students, who are divided equally into two major groups. Each group are subdividedinto21teams, each team on behalf of an economic organization. Wage negotiations are at thesame time under different contracts, and all personnel will be involved in the negotiationsunder two wage contracts. Finally, we will give a certain amount of material rewards based onthe final income of the company and employees.