Communicated Values as Informal Controls: Gaining Accuracy While Undermining Productivity?

Using a laboratory letter-search task, we find that the effectiveness of piece-rate compensation relative to fixed pay hinges on the presence or absence of a nonbinding statement to participants that the experimenter values correct responses. In the absence of the value statement, participants with piece-rate rewards for correct responses generate more correct and incorrect responses than do their counterparts with fixed pay, correcting errors as they go along to maximize compensation. Essentially, piece-rate compensation acts as an output control, incentivizing participants to achieve accurate output through a “produce-and-correct” strategy. The value statement suppresses this strategy because it appears to be perceived as an input constraint that emphasizes accuracy as a condition of the production process, prompting greater care in production at the expense of lower productivity. As a result, the value statement eliminates the gains in accurate production that piece-rate incentivized participants otherwise realize. Thus, in settings in which workers can adjust and correct as necessary to maximize accurate production, our results suggest that organizations can be better off just letting incentive schemes operate, rather than emphasizing accuracy in ways that could potentially constrain productivity.

This seminar is organised by the Erasmus Accounting Research Group.