It’s What You Say Not What You Pay. An Experimental Study of Manager-Employee Relationships in Overcoming Coordination Failure

Abstract: We study manager-employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In the absence of managerial intervention subjects invariably slip into coordination failure. To overcome a history of coordination failure, managers have two instruments at their disposal, increasing employees ’ financial incentives to coordinate and communication with employees. We find that communication is a more effective tool than incentive changes for leading organizations out of performance traps. Examining the content of managers ’ communication, the most effective messages specifically request a high effort, point out the mutual benefits of hig