Piece-rate Incentives Research Articles

The effects of emotion-understanding ability and tournament incentives on supervisors’ propensity to acquire subordinate-type information to use in control decisions

We investigate how emotion-understanding ability, a component of emotional intelligence, and tournament incentives jointly influence supervisors' propensity to acquire information about their subordinates' trustworthiness and tailor their control decisions to this information. We predict and find that when receiving piece-rate incentives, high emotion-understanding supervisors are more likely than low emotion-understanding supervisors to acquire subordinate-type information and use it in their control decisions. In addition, relative to piece-rate incentives, tournament incentives increase supervisors’ propensity to acquire subordinate-type information more for low emotion-understanding supervisors than high emotion-understanding supervisors. Taken together, our results suggest that hiring high emotion-understanding supervisors and giving supervisors tournament incentives are at least partial substitutes in motivating supervisors to acquire and, thus, use subordinate-type information in their control decisions. Our results offer important insights into the process through which supervisors make discretionary control decisions and contribute to the understanding of the forces that shape managerial controls within organizations.

Experimental evidence of the effect of financial incentives and detection on dishonesty

We revisit two fundamental motivations of dishonesty: financial incentives and probability of detection. We use an ability-based real effort task in which participants who are college students in India can cheat by over reporting the number of puzzles they could solve in a given period of time. The puzzles are all unsolvable and this fact is unknown to participants. This design feature allows us to obtain the distribution of cheating outcomes at the individual level. Controlling for participant attributes, we find that introducing piece-rate financial incentives lowers both the likelihood and magnitude of cheating only for individuals with a positive probability of detection. On the other hand, a decrease in the probability of detection to zero increases magnitude of cheating only for individuals receiving piece-rate incentives. Moreover, we observe that participants cheat significantly even in the absence of piece-rate incentives indicating that affective benefits may determine cheating. Finally, an increase in own perceived wealth status vis-à-vis one’s peers is associated with a higher likelihood of cheating while feeling more satisfied with one’s current economic state is associated with a lower magnitude of cheating.

Pengaruh Insentif Keuangan Dan Penetapan Tujuan Terhadap Kinerja Individu: Uji Eksperimen Mahasiswa Kewirausahaan

This study aims to examine the effect of incentive schemes and participation in goal setting on performance. This study intends to test whether goal-setting theory can explain the effect of incentive schemes and individual participation in setting goals on performance achieved within a certain period. The incentive schemes tested in the study are piece-rate, quotas in relation to performance and targeting. Field experiment procedures with a 2x2 design were carried out to test the causal relationship between these variables. Experiments were carried out on 141 students with experimental tasks related to entrepreneurship courses. Data analysis and hypothesis testing were performed using Two Way Anova repeated measurement and contrast test. The results of the analysis show that the performance of the quota incentive scheme where the incentives are given based on the set targets is less than the piece-rate incentive scheme. The budget-based incentive scheme, in this case the quota incentive scheme, is not expected to provide an increase in effort. The increase in effort does not result in better performance.

The Effects of Goal Publicity and Incentives on Self-Set Performance Goals

ABSTRACTMany companies encourage employees to set their own performance goals and do not attach formal incentives to the achievement of these goals. In this environment, some organizations make employees' self-set performance goals public while other organizations do not. We predict that, due to strategic concerns induced by goal publicity and competition, making goals public will be more likely to lead employees to lowball their goals when they work under tournament incentives than under piece-rate incentives. Consistent with this prediction, our experimental results reveal that making self-set performance goals public decreases goal level under tournament incentives but has no significant effect on goal level under piece-rate incentives. Results of our study suggest that the practice of making self-set goals public is potentially more compatible with organizations with a collaborative culture than those with a competitive culture.JEL Classifications: C91; D83; M40.

Unintended consequences of performance incentives: impacts of framing and structure on performance and cheating

ABSTRACT Setting specific, challenging goals motivates employees to exert greater effort in their jobs. However, goal-setting may have unintended consequences of also motivating unethical behavior. The present study explores these consequences in the context of other features of goal-setting in organizations, how goals are framed and rewarded, to determine the tradeoff between performance and ethical behavior. Undergraduate students were incentivized to complete math problems using different outcome frames and incentive structures and were also provided an opportunity to cheat. Findings demonstrate that when goals rewarded with piece-rate incentives are framed as a loss, performance increased, though cheating behavior increased as well.

How Stress Affects Performance and Competitiveness Across Gender

Because many key career events, such as examinations and interviews, involve competition and stress, gender differences in response to these factors could help to explain the labor market gender gap. In a laboratory experiment, we manipulate psychosocial stress using the Trier Social Stress Test and confirm that this is effective by measuring salivary cortisol level and heart rate. Subjects perform in a real-effort task under both tournament and piece-rate incentives, and we elicit willingness to compete. We find that women under heightened stress perform worse than women in the control group when compensated with tournament incentives, whereas there is no treatment difference under piece-rate incentives. For men, stress does not affect output under competition or under piece rate. The gender gap in willingness to compete is not affected by stress, but stress decreases competitiveness overall, which is related to performance for women. Our results could explain gender differences in performance under competition, with implications for hiring practices and incentive structures in firms. This paper was accepted by Axel Ockenfels, behavioral economics.

Incentive magnitude and reference point shifting: a laboratory experiment

PurposeThis paper analyzes how different dynamics of changes in piece-rate incentives affect individuals' exerted effort.Design/methodology/approachThe authors constructed an across-subjects three-period laboratory setting where, for each period, they exogenously manipulate the amount of piece-rate incentive paid for correct answer. The same experimental conditions were separately applied to two different laboratory tasks, one boring and the other entertaining.FindingsIt was found that performance contingent incentives affect participants' effort provision, while the effect is task dependent and it is much stronger for the boring task. Moreover, a unique increase in the amount of piece rate between periods leads to an increase in performance only for the boring task. A decrease in piece rate incentive between periods negatively affects subjects' performance on both tasks, but only provided that the decrease follows a previous increase.Originality/valueThe paper is the first to study the effect of a sequence of changes in the amount of piece rate incentives on individual effort provided. Our main result highlights the relevance of the order in which the sequence of changes in piece-rate incentive occurs. Results could be useful for the designing of performance rewards in organizations.

The Performance Effect of Goal-Based Prosocial Rewards: Does Reward Size Matter?

In recent years the use of performance-contingent prosocial rewards, where employees must give their reward to a charity or a coworker, has become more common. Using a piece-rate incentive structure, prior research shows small dollar prosocial rewards lead to greater performance than small dollar cash rewards, but this effect diminishes when the reward size increases. We extend this research by examining the motivating effect of prosocial reward under a common goal-based incentive structure. Our experiment uses an effort-sensitive task and participants are rewarded for the attainment of a challenging performance goal. We use a 2 by 2 between-subjects design where we manipulate the type of reward for goal attainment (cash vs. prosocial) and the size of the reward (small vs. large). We find that goal-based prosocial rewards result in higher performance than goal-based cash rewards when the reward size is small, but this performance advantage is not observed when the reward size is large. We also find that the affective value individuals attach to goal attainment mediates our results, and that the performance advantage of small goal-based prosocial (vs. cash) rewards is mainly driven by low-performing participants. Implications for theory and practice are discussed.

Incentive Magnitude, Reference Point Shifting and Intrinsic Motivation: A Laboratory Experiment

Despite the fact that much research has been devoted to understanding the effect of performance-contingent monetary incentives on individuals’ effort provision, little attention has been dedicated toward understanding whether a sequence of changes in the amount of piece rate an individual receives affects performance. In this paper we examine how effort provision of participants varies in a three-period laboratory setting in which different performance based compensation schemes are implemented for two differentiated tasks. The first task, consisting of downward counting from a big number while each time subtracting a fixed quantity, is considered relatively more challenging, while the second task consisting of counting the number of A’s in a paragraph is considered relatively less challenging. Our findings are as follows: (1) Performance contingent incentives affect participants’ effort provision. (2) The effect is task dependent and it is much stronger for the less challenging task. (3) A unique increase in the amount of piece rate leads to an increase in performance only in the less challenging task. (4) A decrease in piece rate incentive negatively affects subjects’ performance on both tasks, but only provided that the decrease follows a previous increase.

Output restriction and the ratchet effect: Evidence from a real-effort work task

The “ratchet effect” is a phenomenon where workers strategically restrict their output because they anticipate high levels of productivity will be met with increased expectations in the future. Using a real-effort work task and a piece-rate incentive scheme, we investigate the presence of the ratchet effect using two different methods for evaluating worker productivity: (i) when productivity is evaluated individually, and (ii) when productivity is evaluated collectively among a group of workers. We find strong evidence that workers restrict output when productivity is evaluated individually. However, we find little evidence of output restriction when productivity is evaluated at the group-level, which we attribute to the coordination problem and the free-riding incentive that emerge within the group. Although, output restriction re-emerges if workers are able to communicate. We also examine an important dynamic implication of the ratchet effect, and our results indicate that output restriction reduces future productivity through reduced learning-by-doing.

How Stress Affects Performance and Competitiveness across Gender

Since many key career events, such as exams and interviews, involve competition and stress, gender differences in response to these factors could help to explain the labor-market gender gaps. In a laboratory experiment, we manipulate psychosocial stress using the Trier Social Stress Test, and confirm that this is effective by measuring salivary cortisol. Subjects perform a real-effort task under both tournament and piece-rate incentives and we elicit willingness to compete. We find that women under heightened stress do worse than women in the control group when compensated with tournament incentives, while there is no treatment difference for performance under piece-rate incentives. For males, stress does not affect output under competition. We also find that stress decreases willingness to compete overall, and for women, this is related to performance. These results help to explain previous findings on gender differences in performance under competition both in and out of the lab.

How Stress Affects Performance and Competitiveness across Gender

Since many key career events, such as exams and interviews, involve competition and stress, gender differences in response to these factors could help to explain the labor-market gender gap. In a laboratory experiment, we manipulate psychosocial stress using the Trier Social Stress Test, and confirm that this is effective by measuring salivary cortisol. Subjects perform a real-effort task under both tournament and piece-rate incentives and we elicit willingness to compete. We find that women under heightened stress do worse than women in the control group when compensated with tournament incentives, while there is no treatment difference for performance under piece-rate incentives. For males, stress does not affect output under competition. We also find that stress decreases willingness to compete overall, and for women, this is related to performance. These results help to explain previous findings on gender differences in performance under competition both in and out of the lab.

The slider task: an example of restricted inference on incentive effects

Real-effort experiments are frequently used when examining a response to incentives. For a real-effort task to be well suited for such an exercise its measurable output must be sufficiently elastic over the incentives considered. The popular slider task in Gill and Prowse (Am Econ Rev 102(1):469–503, 2012) has been characterized as satisfying this requirement, and the task is increasingly used to investigate the response to incentives. However, a between-subject examination of the slider task’s response to incentives has not been conducted. We provide such an examination with three different piece-rate incentives: half a cent, two cents, and eight cents per slider completed. We find only a small increase in performance: despite a 1500 % increase in the incentives, output only increases by 5 %. With such an inelastic response we caution that for typical experimental sample sizes and incentives the slider task is unlikely to demonstrate a meaningful and statistically significant performance response.

The Effect of Involvement on Fundraising: A Charity Field Experiment

We investigate the effect of fundraiser incentives and orientations on effort and outcomes in a fundraising drive. We report results of a field experiment consisting of over 350 volunteers participating in a fundraiser over a period of two months. A unique feature of this study is that we observe communication and creative effort. Each fundraiser is tasked with maintaining a personal website, creating content, including an essay about personal connection to the charity, and establishing social connections in an effort to raise money. Treatments include a control with no incentives, piece rate incentives and tournaments incentives. We find that funds raised are driven by both creative and communication efforts and that communication effort mediates the impact of piece rate incentives and charitable orientation on funds raised, whereas creative effort mediates charitable orientation only. While creative activity is less critical than communication activity in raising short term funds, it is more sensitive to orientations than communication activity and is driven positively by trust and charitable orientations. Intent to volunteer in future period is shown to be increasing in current efforts and negatively impacted by incentives, without significant mediation.

Testing for the Ratchet Effect: Evidence from a Real-Effort Work Task

The refers to a phenomenon where workers whose compensation is based on productivity strategically restrict their output, relative to their capability, because they rationally anticipate that high levels of output will be met with increased or ratcheted-up expectations in the future. While there is ample anecdotal evidence suggesting the presence of the ratchet effect in real workplaces, it is difficult to actually empirically identify output restriction among workers. In this study, we implement a novel experimental design using a real-effort work task and a piece-rate incentive scheme to directly test for the presence of the ratchet effect using two different methods for evaluating productivity: (i) when productivity is evaluated based on the output of each individual worker, and (ii) when productivity is evaluated collectively based on the output of a group of workers. We find strong evidence of the ratchet effect when productivity is evaluated at the individual-level. However, we find very little evidence of the ratchet effect when productivity is evaluated collectively at the group-level. We attribute the latter result to the free-riding incentive that emerges when productivity is evaluated at the group-level. Furthermore, we find the ratchet effect re-emerges if workers are able to communicate. Our experimental design, combined with using a real-effort work task, also allows us to shed light on an important dynamic implication of the ratchet effect that has not yet been examined in the literature – the role of the ratchet effect on future productivity via learning-by-doing.

A model for exploring the relationship between payment structures, fatigue, crash risk, and regulatory response in a heavy-vehicle transport system

Investigations of heavy vehicle crashes have predominantly taken a reductionist view of accident causation. However, there is growing recognition that broader economic factors play a significant role in producing conditions that exacerbate crash risk, especially in the area of fatigue. The aim of this study was to determine whether agent-based modelling (ABM) may be usefully applied to explore the effect of driver payment methods on driver fatigue, crash-risk, and the response of enforcement agencies to major heavy-vehicle crashes. Simulation results showed that manipulation of payment methods within agent-based models can produce similar patterns of behaviour among simulated drivers as that observed in real world studies. Simulated drivers operating under ‘per-km’ and ‘per-trip’ piece rate incentive systems were significantly more likely to drive while fatigued and subsequently incur all associated issues (loss of license, increased crash risk, increased fines) than those paid under ‘flat-rate’ wage conditions. Further, the pattern of enforcement response required under ‘per-km’ and ‘per-trip’ systems was significantly higher in response to greater numbers of major crashes than in flat-rate regimes. With further refinement and collaborative design, ABMs may prove useful in studying the potential effects of economic policy settings within freight or other transport systems ahead of time.

Combining "real effort" with induced effort costs: the ball-catching task.

We introduce the “ball-catching task”, a novel computerized task, which combines a tangible action (“catching balls”) with induced material cost of effort. The central feature of the ball-catching task is that it allows researchers to manipulate the cost of effort function as well as the production function, which permits quantitative predictions on effort provision. In an experiment with piece-rate incentives we find that the comparative static and the point predictions on effort provision are remarkably accurate. We also present experimental findings from three classic experiments, namely, team production, gift exchange and tournament, using the task. All of the results are closely in line with the stylized facts from experiments using purely induced values. We conclude that the ball-catching task combines the advantages of real effort tasks with the use of induced values, which is useful for theory-testing purposes as well as for applications.Electronic supplementary materialThe online version of this article (doi:10.1007/s10683-015-9465-9) contains supplementary material, which is available to authorized users.

Gender Differences in Incentive Effects after Compensation Scheme Changes

This paper studies the role of prior financial incentives on motivational crowding out. In a real-effort experiment we vary the order of remuneration schemes. In the main treatment workers receive a piece rate before financial incentives are substituted by a one-time payment. Under the fixed payment effort is significantly lower only if piece-rate incentives preceded. The decrease is driven by a fraction of men who drastically reduce their performance. Overall, men lower effort by 12%, whereas women constantly perform well. Our control shows that this motivational crowding-out effect disappears when men do not have prior experience of a piece rate.

The Effect of Incentives of Real Effort: Evidence from the Slider Task

Real-effort experiments are frequently used when examining a response to incentives.For any particular real-effort task to be well-suited for such an exercise subjects’ cost for exertingeffort must result in an interior effort choice. The popular slider task in Gill and Prowse (2012)has been characterized as satisfying this requirement, and the task has been increasingly used to investigatethe response to changes in both monetary and non-monetary incentives. However, despiteits increasing use, a simple between-subject examination of the slider task’s response to incentiveshas not been conducted. We provide such an examination with three different piece-rate incentives:half a cent, two cents, and eight cents per slider completed. We find that participants in the threetreatments completed on average 26.1, 26.6 and 27.3 sliders per round, respectively. The one-sliderincrease in observed performance is small, not only relative to the sixteen-fold increase in the incentives,but also relative to the observed heterogeneity across subjects, rates of learning, and evenidiosyncratic variation. Our paper cautions that the slider task will be underpowered for uncoveringa response to incentives in between-subject designs.

Combining "Real Effort" with Induced Effort Costs: The Ball-Catching Task

We introduce the a novel computerized real effort task, which combines “real” efforts with induced material cost of effort. The central feature of the ball-catching task is that it allows researchers to manipulate the cost of effort function as well as the production function, which permits quantitative predictions on effort provision. In an experiment with piece-rate incentives we find that the comparative static and the point predictions on effort provision are remarkably accurate. We also present experimental findings from three classic experiments, namely, team production, gift exchange and tournament, using the task. All of the results are closely in line with the stylized facts from experiments using purely induced values. We conclude that the ball-catching task combines the advantages of real effort with induced values, which is useful for theory-testing purposes as well as for applications.