The Impact of Financial Incentives on the Worker Performance: An Empirical Analysis

Topic

Expectancy-value theory suggests that workers can be motivated by the belief that increased effort will lead to greater rewards. Piece-rate incentives are, therefore, often used for quantitative tasks. However, from the law of diminishing returns, it might be that the high-performance range people already show (almost) optimal performance without much effort. While studies find positive effects on average, it is unknown whether piece rates equally affect workers from all performance ranges, which is the reason to address this question.

Relevance

Practitioners need to know how much effect they can expect from providing a piece-rate reward to their workers. They search for the best cost-effect incentive model and still have to base their decisions on limited information and, therefore, can use the present study results to make their models more complex yet more effective.

Results

The results show that piece rates can be effective and less so among higher performance ranges. Nevertheless, other factors seem to play a role, as the different studies revealed inconsistent results. From the different study characteristics and findings obtained, likely factors of influence are the relative value and attainability of the incentive, fairness, pleasurably, and difficulty of the task. The effect of piece rates is complex.

Implications for practitioners

• Piece rates can be a positive incentive for improving performance on quantitative tasks.
• The effects of piece rates are complex, and it cannot be assumed that they will be (equally) effective for all workers.
• Managers do well first to investigate how their workers perform and why, including in terms of capability, pleasure, and ease.
• Managers also do well investigating what workers would perceive as fair and attainable piece rates.
• Especially piece rates that are relatively low compared to what workers receive regardless of performance are unlikely to be effective.

Methods

Secondary data analysis from previously published studies which only looked at the average increase (decrease) in performance, was conducted. The research used quantile regression analysis to examine the effects of different financial incentive schemes within various performance segments. Furthermore, descriptive statistics revealed insight into the specific study characteristics (such as the value and relative value of the piece rate), providing information about possible reasons why different effects were obtained.