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ABSTRACT The coexistence of various performance pay schemes is usually associated with the diversity of firms’ characteristics. This explanation is nevertheless not sufficient. The diversity of the payment schemes also matches the existence of various types of workers. Heterogeneous workers in terms of ability and intrinsic preferences such as social preferences may maximize their utility under a specific payment scheme. It is theoretically and empirically proved that workers self-select into different types of organizations depending on their ability level and also on their social preferences. Moreover, the heterogeneity of workers contributes to the efficiency of the market if the workers self-select into different organizations.