Future Work

The limitations in the data prevented more in-depth statistical analysis. With better data from the Annual Fund on the individual callers, a model could control for both the different call lists and individual worker ability:

Y = β₀ + β₁Gender + β₂SR + β₃JR + β₄SOP H + β₅FRO + β₆Major + β₇List2 + β₈ListAB + β₉ListD + β₁₀ListF + β₁₁ListG + β₁₂ListH + β₁₃ListL + β₁₄ListN + β₁₅ListP + β₁₆ListR + β₁₇ListS + β₁₈Scheme

(5.1)

where the dependent variable, Y, would be pledge dollars per attempt. The different call lists are controlled for by a dummy variable, with a 1 indicating that list is being called and a 0 indicating that the list is not being called. The scheme type is also controlled for using a dummy variable, with 1 indicating an hourly wage and 0 indicating a piece-rate. Additionally, both gender and year of graduation are indicated by dummy variables. The majors would be broken down and grouped by which college they belong to. Dummy variables similar to the ones set up for lists would be used to control for colleges.

If the descriptive statistics hold true, there would be a statistically significant change in production between compensation schemes. Specifically, when all else is controlled for, production should go down by around 25%. Because this model incorporates gender, differences in how males and females respond to piece-rates could be examined. Booth and Frank (1999) found that males responded to piece-rates at a 9% level compared to 6% for females. This model would be able to expand the literature on gender differences in compensation schemes.

If the data were available for how much money each employee made under the piece-rate, I could have calculated the optimal piece-rate to award for each pledge dollar. Because the Annual Fund does not have a minimum standard for pledge amount to remain employed, the methods used in Lazear (1996) do not directly apply; however, the intuition remains similar. The Annual Fund would want to create a piece-rate that maximizes profit as well as induces low ability workers to maximize their effort. High ability workers will produce at a high level of output regardless, and the lost output from not maximizing the incentive for the high ability workers is more than counteracted by the savings to the firm.

Production was drastically reduced, but the effects on the Annual Fund’s overall profits are uncertain. The research done by Freeman and Kleiner (2005) found that a shoe company saved money from switching to an hourly wage scheme from a piece-rate scheme despite the decrease in production. However, without knowing how much money the Annual Fund saved by switching to an hourly wage, no conclusions can be drawn on the profitability of this change.