Most common queuing models used for service system design assume that servers work at fixed (possible heterogeneous) rates. However, real-life service systems are staffed by people, and people respond to incentives. Then, the system manager can use compensation to induce desired employee behaviour. Our objective in this paper is to understand the relationship between employee compensation and service system performance.
We do this in the context of a service system in which there is a trade-off between service speed and service quality, and employee are paid based on both. Each employee selfishly chooses his or her service speed in order to maximize the expected payment. For large service systems, we describe the symmetric equilibrium service speed. Then, we introduce the system manager’s costs, and solve a fluid approximation problem to find the minimum cost staffing and employee compensation policy. We find that different operating regimes emerge depending on the assumed employee utility function and system manager cost structure.