Implicit employment contracts are a common way to motivate firm productivity but also require that employees trust management to be fair when allocating postproduction firm resources between employees and owners. We use an experiment to study the problem of motivating firm productivity, which depends on levels of owner investment and employee productive effort, when managers have an incentive to favor the owner's interests over those of the employee. Drawing on research in psychology and behavioral economics, we argue that reputation concerns can more effectively promote firm productivity when manager compensation is relatively insensitive to how much the owner is allocated after production occurs. Consistent with our predictions, we find that reputation concerns lead to greater firm productivity and higher payoffs for all firm members, but only when manager pay is relatively insensitive to the owner's ex post allocation. In addition to offering testable empirical implications, our theory and results are important because they can help explain why executive compensation is, in practice, surprisingly insensitive to owner returns.

We examine how worker productivity differs when compensation is based on quantity, creativity, or the product of both measures. In an experiment in which participants design “rebus puzzles,” we find that combining quantity and creativity measures in a creativity‐weighted pay scheme results in creativity‐weighted productivity scores that are significantly lower than those generated by participants with quantity incentives alone. Follow‐up analysis indicates that relative to participants in the quantity‐only condition, participants in the creativity‐weighted condition produce approximately the same number of high‐creativity puzzles, but produce significantly fewer puzzles overall. Thus, while participants rewarded for creativity‐weighted output tend to restrict their production to high‐creativity efforts, they are unable to translate this focus into a greater volume of high‐creativity output. Implications address a possible explanation for firms' reluctance to incorporate creativity measures within multidimensional performance measurement systems, notwithstanding published suggestions to do so.