An examination of how the effort-inducing property of incentive compensation influences performance in multidimensional tasks

Abstract

Employees often find themselves working in organizations where their jobs have multiple dimensions. An often proposed solution to motivating employees in multidimensional environments is for organizations to use incentive compensation. Incentive compensation can both direct employees’ attention (attention-directing property) and motivate their effort levels (effort-inducing property) but incentive compensation might not always be optimal in multi-dimensional settings. Thus, it is important to better understand the two proposed properties of incentive compensation through which incentive compensation motivates employee performance. Conducting an experiment in a multidimensional environment that contains quantity and quality task dimensions, we find that the incremental effectiveness of the effort-inducing property over the attention-directing property on performance quantity and performance quality varies depending on the task dimension toward which attention is directed and effort is induced. Specifically, the effort-inducing property has a positive incremental effect over the attention-directing property on performance quality when the quality dimension is incentivized; however, the effort-inducing property does not have a positive incremental effect over the attention-directing property on performance quantity when the quantity dimension is incentivized. This study provides important insight regarding the properties of incentive compensation.