Rewarding carrots and crippling sticks: Eliciting employee preferences for the optimal incentive design

Abstract

The effectiveness of conventional firm-specific incentive tools is assessed based on the perceptions of a unique sample of employees from seven European countries. A ‘menu’ of conditions likely to elicit optimal worker response to specific incentives is also revealed. The results suggest that the primary determinant of employee effort is job discretion, though monetary rewards and ‘gift exchanges’ are the most effective motivators. Monitoring and Taylor-type assembly lines are considered unproductive. The optimal incentive design by firms is shown to be shaped by a host of contextual factors and requires a “participative” management approach to achieve its maximal motivational potential.