COMPARING THE PERFORMANCE EFFECT OF FINANCIAL INCENTIVES FOR A SIMPLE, RECURRENT TASK

Abstract

The current study examines the performance effects of financial incentives for a simple, recurrent task designed to simulate an assembly-line setting. The study looks at early performance, improvement and overall performance. For a new task, performance-based incentives appear to improve the initial performance of the task but not subsequent improvement rate (Bailey et al., 1998). The current paper reports on a laboratory experiment whose results confirm the findings of Bailey et al. (1998) but also indicates that for both performance-based and fixed incentives, significant performance improvement takes place well beyond the initial performance of the task, declining gradually over time. This is in contrast with the suggestion of Bailey et al. (1998) that workers with performance-based incentives will choose to improve initial performance rather than subsequent performance. Findings also suggest that improvement peaks earlier for performance-based incentives than for a fixed incentive. Improvement persisted longer and there was better overall performance with the high fixed component quota and piece rate incentives than with the low fixed component quota implying that incentives that impose higher risk (e.g. a low fixed component quota incentive) on workers result in de-motivation and lower performance.