The Burden of Glory: Competing for Non-monetary Incentives in Rank-order Tournaments Suggested running head: “The Burden of Glory” RAJA KALI Department of Economics. Sam M. Walton College of Business. University of Arkansas Henry Angus Building, 2053. Fayetteville, AR 72701-1201 [email protected] DAVID PASTORIZA* (corresponding author) Department of International Business. HEC Montréal. Chemin de la Cote-Sainte-Catherine, 3000. Montréal, Canada. H3T 2AT [email protected] JEAN-FRANÇOIS PLANTE Department of Decision Sciences. HEC Montréal. Chemin de la Cote-Sainte-Catherine, 3000. Montréal, Canada. H3T 2AT [email protected] The Burden of Glory: Competing for Non-monetary Incentives in Rank-order Tournaments Abstract In an environment in which elite, highly-paid professionals compete for non-monetary rewards, we find evidence of underperformance. Our analysis suggests that choking under pressure from high-stakes non-monetary rewards is behind the underperformance. This implies that high stakes non-monetary rewards can create meaningful pressure on individuals and lead to worse performance, a distinct issue that has yet to be adequately examined. These findings come from an examination of the behavior of top US golfers competing to earn a place on the US Ryder Cup team via their performance in PGA Tour tournaments with differing allocations of Ryder Cup qualifying points. Keywords: Competition, non-monetary incentives, high stakes, choking, performance, risk-taking, intimidation The Burden of Glory: Competing for Non-monetary Incentives in Rank-order Tournaments Abstract: In an environment in which elite, highly-paid professionals compete for non- monetary rewards, we find evidence of underperformance. Our analysis suggests that choking under pressure from high-stakes non-monetary rewards is behind the underperformance. This implies that high stakes non-monetary rewards can create meaningful pressure on individuals and lead to worse performance, a distinct issue that has yet to be adequately examined. These findings come from an examination of the behavior of top US golfers competing to earn a place on the US Ryder Cup team via their performance in PGA Tour tournaments with differing allocations of Ryder Cup qualifying points. 1. Introduction What is the impact of high-stakes non-monetary incentives on job performance? This is an important question given how widely used non-monetary incentives are in the business world1. A growing body of academic literature has begun to consider this question2. A primary focus of this literature has been on the role of non-monetary incentives in principal- agent problems. At the risk of generalizing, one could say that the conclusion of the literature thus far, both theoretical and empirical, is that non-monetary rewards can provide 1 Non-monetary incentives are widely used in firms. It is common practice in various organizations to reward top-performing employees with symbolic rewards such as medals, rings, sculptures and plaques, often during lavish ceremonies. Kosfeld and Neckermann (2011) provide examples of such awards from McDonalds and IBM. 2 Heffetz and Frank (2011), Gneezy et al., (2011), and Ellingsen and Johanesson (2007) are valuable surveys of the literature in these areas. The idea that humans value status has been widely studied (see, for example, Frank (1985)). We reference specific papers later. 3 effective incentives, and in some cases may be better than financial incentives at aligning objectives of agents and principals. In this paper, we examine an environment in which individuals compete for a high- powered non-monetary reward associated with status and social esteem, and find evidence that runs contrary to existing empirical literature on non-monetary incentives, albeit in a setting that is entrepreneurial rather than agency. We find that elite, highly-paid professionals who compete for glory underperform, and that underperformance intensifies as pressure increases. While prior research (Ariely et. al., 2009) has found that high- powered monetary incentives can result in a decrease in performance, our finding that such “choking” under pressure can happen with non-monetary incentives is novel, to the best of our knowledge. Empirical work on the question of non-monetary incentives has been primarily experimental, in large part because of the difficulty in finding a real-world setting with a convincing separation of monetary and non-monetary incentives. What distinguishes our study is an attempt to examine the importance of non-monetary incentives in a competitive environment with high stakes, high-ability, and wealthy agents: the PGA tour. Since we cannot distinguish between the effects of status, social esteem and respect (and indeed multiple non-monetary mechanisms could be at work), we therefore bundle them together under the term “glory.” Specifically, we use data from the PGA Tour to examine the performance of US players between 1996 and 2012 when competing to qualify for the Ryder Cup. 4 The Ryder Cup is the oldest competition of nations in professional golf, involving the two golf superpowers: the US and Europe. Players are not paid to participate in the Ryder Cup and there is no monetary award for winning the Ryder Cup. Moreover, players who qualify for the USA Ryder Cup team must make a donation to a charitable foundation. This biennial competition is widely acknowledged to be the most prestigious competition of nations in golf. Playing for one’s country is a great honor for which even very wealthy professional golfers vie (Palmer and Dodson, 1999; Rosaforte, 1996). Being part of an elite group of golfers who have the privilege of representing their countries, and not a direct monetary gain, is considered the Ryder Cup’s own reward. We use the contest to qualify for the Ryder Cup to provide a separation of monetary and non-monetary incentives. The Ryder Cup qualifying point system allocates a number of points to each PGA Tour tournament. It is designed in such a way that throughout the qualifying Ryder Cup period (typically two years), two editions of the same PGA Tour tournament have a different endowment of Ryder Cup points. One year (the year previous to the Ryder Cup) in which there are few Ryder points and another year (the year of the Ryder Cup) in which there are many Ryder points while all other aspects of the tournament are similar. Our identification strategy is based on comparing the performance of players across the same tournament in two subsequent years. By focusing on blocks of the PGA Tour tournament with similar economic incentives (i.e., prize money awarded), but different glory incentives (i.e., available Ryder Cup points), we can measure the effect of the latter. The main results of our paper are as follows. First, the higher the number of Ryder Cup points at stake is, the worse players play. In other words, we find significant evidence that the desire to attain glory is a burden for player performance. Second, we find evidence 5 that as the time to qualify runs out and competitive crowding intensifies, players feel more pressure and tend to underperform. Third, we find that Ryder Cup points have negative effects on both players with and without previous Ryder Cup participation. Thus, adverse effects are present not only among players who try to attain glory for the first time, but also among those who try to retain it. Fourth, we find no evidence that players who are not competing to qualify for the US Ryder Cup team (e.g., low-ability3 players) are negatively affected in PGA Tour tournaments with a higher allocation Ryder Cup points. Our results are thus robust to an out-of-sample test. Fifth, we eliminate the possibility that player underperformance is due to the adoption of risky strategies. We find that when players find themselves in tournaments with a high allocation of Ryder Cup points, they become risk averse and adopt safe strategies. Sixth, we show that off-the-course income (e.g., corporate endorsements), is not sensitive to qualifying for the Ryder Cup. Thus, player underperformance is unlikely to be driven by pressure from the expectation of future monetary rewards, as in Ariely et al., (2009). Finally, we find that even the wealthiest players in the PGA Tour (i.e., those who earn very high off-the-course incomes) underperform when trying to qualify for the Ryder Cup. The remainder of the paper is structured as follows. Section 2 motivates our study in the context of the literature on non-monetary incentives and choking under pressure. Section 3 describes the Ryder Cup and the way in which American players qualify to represent the US, which sets the stage for our empirical strategy described in Section 4. Section 5 contains our primary results. In section 6 we conduct a series of robustness 3 Although we use the term “low-ability”, all golfers in the PGA Tour have extraordinary golf skills. 6 checks. In section 7 we consider alternative explanations for the behavior of players to qualify for the US Ryder Cup Team. Section 8 discusses our results and concludes. 2. Non-Monetary Incentives and Performance Most empirical research on non-monetary incentives has taken the form of laboratory experiments. In pioneering work, Ball and Eckel (1996, 1998) and Ball et al., (2001) directly manipulate status in the lab by artificially awarding high or low status to subjects. They find that their manipulation affects behavior and those individuals awarded high status in the lab enjoy favorable economic outcomes. Ashraf et al., (2014) conduct a field experiment to examine the effectiveness of financial and non-financial rewards for pro- social tasks. They find that agents who are awarded non-financial rewards exert more effort than those offered financial rewards. Non-financial rewards elicit effort by facilitating social comparisons among agents and by leveraging the agents’ pro-social motivation.