Abstract
Organizations frequently try to incentivize employees to develop highly creative solutions. In this study, we examine self-set salaries as a specific type of incentive design. We investigate whether self-set salaries affect employees’ motivation and overall (creative) performance. Moreover, because self-set salaries potentially risk opportunistic employee behavior, we consider the effect of the observability of peer performance on employees’ level of self-set salaries. Using a laboratory experiment, we hold the average employee compensation constant and demonstrate that, in comparison with fixed-pay contracts, self-set salaries increase the quantitative performance in creative tasks without affecting the average creativity. However, we do not find significant differences between the amount of individuals’ self-set salaries with observability of peer performance and the amount for individuals without the chance to observe peer performance. Our findings are important for firms that rely on the development of creative ideas but are unsure about the effects of the introduction of self-set salaries.
Highlights
This study examines the effects of self-set salaries as a means of stimulating employees’ motivation to develop creative ideas
We investigate whether self-set salaries affect creative performance in terms of quantity and average creativity levels compared with fixed compensation
This paper reports the results of an experimental study that investigates the effect of self-set salaries on creative performance as well as the effect of the observability of peer performance on salary requests
Summary
This study examines the effects of self-set salaries as a means of stimulating employees’ motivation to develop creative ideas. At first sight, offering incentives to stimulate and motivate creativity appears to be a feasible way to increase employees’ creativity (Byron and Khazanchi 2012). It is still a challenge for the management and management accountants to provide adequate incentive or reward systems to promote creativity successfully (Kaplan and Norton 1996). Using performance-based incentives to promote creativity may not be appropriate In contrast to this expectation, a review of the extant studies on creativity and rewards by Byron and Khazanchi (2012) shows that creativity-contingent rewards are able to increase creative performance. The authors find that, when rewards are quantity contingent, incentives have a slightly negative effect on creative performance
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