Introduction

The University of Massachusetts Amherst Annual Fund raises money for the university by hiring students to cold call alumni, parents of students, and other friends of the school. Potential donors are separated into different lists based on individual profiles (i.e., people who have never donated, people with high incomes, and people who donated the previous year). Each student worker is randomly assigned to call different lists of people during a work session with the goal of receiving as many donations as possible. Because donations fund the cost of faculty, campus upkeep, scholarships, and other endeavors beneficial to the university,¹ the Annual Fund is a vital university organization.

The Annual Fund measures success by the amount of pledge dollars received, so understanding the pay schemes that most motivate student workers is crucial. Before the fall of 2011, the Annual Fund used a piece-rate compensation scheme. A piecerate compensation scheme is a pay schedule in which a worker is paid a base salary plus a “piece” for each unit produced or action performed. For instance, in 2011 each employee at the Annual Fund earned a base pay of $8 an hour and received additional bonuses for receiving donations on credit cards, receiving large pledges, or meeting nightly goals. The Annual Fund’s 2011 compensation scheme is reminiscent of the piecerate scheme Edward Lazear (1996) studied in the autoglass industry. Lazear found that a piece-rate scheme not only maximizes a worker’s output (the effort effect), but also attracts more productive workers to the firm (the sorting effect). Lazear’s piece-rate findings are reaffirmed by Shi’s research on the lumber industry (2010) as well as by Heywood, Wei, and Ye’s research on university professors (2011). These studies seem to confirm the significant effects of piece-rate schemes on worker productivity. However, the literature regarding piece-rate compensation is devoid of a calling center example, such as the Annual Fund.

Starting in the Spring of 2011 the Annual Fund changed their pay scheme from a piece-rate scheme to an hourly wage structure. Under the new compensation scheme, workers earned a base pay of $9.25 an hour—an increase of $1.25 an hour. However, all piece-rates and bonuses were removed. According to Sarah Sligo, the Executive Director of Annual Giving,² the compensation scheme switch aimed to create a sorting effect. In theory, offering a base pay of $9.25 an hour - the highest student wage on campus - prompts high ability workers to apply to the Annual Fund, while simultaneously discouraging unproductive workers from applying. Assuming the sorting effect holds true, it would subsequently create an effort effect in which pledge dollars are maximized because only high ability workers are present at the firm.

There is some research done on the effects of changing from a piece-rate to an hourly compensation scheme; however, the literature does not support Sligo’s assertions about creating sorting and effort effects. For instance, Freeman and Kleiner (1998) found that production declined when an unnamed shoe manufacturing company switched from piece-rate to hourly pay. However, the company saved money because both the reduction in wage costs and reduced workers’ compensation claims outweighed the costs of reduced production. Although production declined as a result of the switch to hourly pay, Freeman and Kleiner (1998) factored in additional costs of piece-rate schemes—such as supervisor costs, quality control costs, and hiring costs—in order to analyze the benefits of switching to an hourly wage scheme.

I hypothesize that a change from a piece-rate compensation scheme to an hourly compensation scheme negatively affects the output of workers. I examined twenty-two call lists, each consisting of the aggregate amount of pledge dollars, call attempts, and called party responses for Spring 2011 and Spring 2012. Also included are the month-by-month totals for both springs. The Fall of 2011 is not included because the fall and spring calling periods vastly differ due to the compositions of call lists. In order to protect the confidentiality of the student callers, personal information such as major, gender, and year of graduation were not disclosed; however, the data includes the number of student callers who worked in both springs. The information provided on the sheets allows for a comparison of the effort effect, sorting effect, and tenure effect between the two springs. Through an extensive literature review, I will examine research done on compensation schemes to support my hypothesis that a change in compensation scheme from a piece-rate scheme to an hourly compensation scheme negatively affects the output of workers. Next, I will look for differences in output across all twenty-two lists between the Spring of 2011 and the Spring of 2012 for an effort effect. Because the turnover for student callers is so high between semesters, the presence of an effort effect implies a sorting effect. Essentially, if worker effort in Spring 2012 is different from worker effort in Spring 2011, it can be inferred that different ability workers were hired. Finally, I will examine the month-by-month data to see if there is a tenure effect (i.e. if workers’ ability increased by learning the nuances of the job) as a result of the compensation scheme change.

¹ http://www.umass.edu/giving/opportunities/

² http://www.umass.edu/giving/contact/directory/