The Effects of Performance Incentives and Training on Insight Problem-Solving

Abstract

I investigate whether the effect of incentives on insight problem-solving is conditional on employee skill which can be gained through training. I also investigate whether non-monetary incentives can be just as effective as financial incentives in the insight problem task setting. Results from a laboratory experiment shows that the effect of performance incentives (both financial incentives, e.g., piece-rate pay and non-financial incentives, e.g., recognition) are more positive when training is present than when it is absent. In the absence of training, individuals receiving piece-rate pay solved fewer insight problems than those receiving fixed wage. There are no significant performance differences between those receiving fixed wage plus recognition and those receiving only fixed wage. In the presence of training, performance of those receiving performance incentives (both piece-rate pay and fixed wage plus recognition) are marginally higher than those receiving fixed wage. This study contributes to a better understanding of the conditions under which incentive schemes can have positive effects on employees’ ability to develop insight. Since insight is often associated with innovation, my research can inform firms looking for ways to incorporate incentives into their innovation management practices. Also, I find that non-monetary incentive schemes such as recognition can be an effective alternative to financial schemes, thus help to explain why firms often reward innovative employee behavior with symbolic prizes in public forums rather than with money.