PSY 6450
Unit 8
Performance and Pay
1
Schedule

Exam (35 points) on Monday, 11/26


Monday after Thanksgiving break
Reminder - if you want your project grade
before ME2, projects are due Monday,
12/03

Otherwise, final due date during final exam
week, Monday, 12/10
2
A Little Introduction


My main thematic line of research has been
the effects of individual and small group
monetary incentives on employee
performance and satisfaction
Most of that work has been “bridge”
research
3
Bridge Research

Bridge research


The main advantage of bridge research


Laboratory simulations that address practical
questions from organizational settings
Isolation of the effects of incentives from
administrative and organizational changes
The main disadvantage of bridge research

Relevancy to actual work settings
4
Relevancy to Work Settings


Caution is good (and recommended)
Reviews, though few in number, have
indicated that the results of field studies
and laboratory studies are similar




Jenkins (1986), Jenkins, Mitra, Gupta & Shaw (1998)
Hantula (2001)
Bucklin & Dickinson (2001)
We have found similarities as well


Frisch & Dickinson (1990)
LaMere, Dickinson, Henry, Henry & Poling (2000)
5
How I Got My Start:
The Practical Beginning

Union National Bank, Little Rock, AR

Individual monetary incentive systems implemented in
early 1980s


By the late 1980s, 75 systems had been installed,
covering 70% of the bank’s 485 employees



William B. Abernathy, H. Hall McAdams, Wayne Dierks,
Kathleen McNally
Productivity increases of 200%-300%
Net profit per employee $11,000 compared to $4,950 for
other Little Rock banks
Program committee for ABA

While scheduling, call from someone important
6
How I Got My Start:
The Academic Beginning

The role of financial compensation in
industrial motivation
Opsahl & Dunnette (1966)

Appealed to researchers to conduct
controlled laboratory studies because:
7
Opsahl & Dunnette, 1966
“Strangely, in spite of the large
amounts of money spent and the
obvious relevance of behavioral theory
for industrial compensation practices,
there is probably less solid research in
this area than in any other field related
to worker performance.” (p. 94)
8
Individual Monetary Incentives:
Research Since 1966*

20 years later: 28 systematic studies of
individual monetary incentives
Jenkins (1986)

12 years after that: 39 systematic studies
of individual monetary incentives
Jenkins et al. (1998)
Meta-analytic review
 Individual incentives had
an overall effect size of .34

*excludes survey studies
9
Group Incentive Research*

~13 published studies
Honeywell-Johnson et al., 2002; Culig, 2005

Only 8 have compared the effects of
individual incentives and small group
incentives (N = 2-12 group members)

My students and I have done 3 of those
* excludes survey studies
10
Prevalence in Business:
Individual Monetary Incentives

90% of Fortune 1000 companies have
some type of individual incentive plan
Ledford, Lawler, & Mohrman (1995)

47% of 1045 companies surveyed by
Hewitt had individual incentive plans

Rewards were based on specific
employee performance criteria
Hewitt Associates (2005)
11
Prevalence in Business:
Group Monetary Incentives

87% of Fortune 1000 companies have
work group or team incentives
Lawler, Mohrman, & Ledford (1998)

Fortune 1000 companies increased their
use of work group or team incentives by
50% between 1987 and 1996
Ledford & Hawk (2000)
12
About The Beginning Again


My students and I began this research In the
late 1980s when only about 20 systematic
studies had been conducted
We began with questions raised by both Union
National Bank and Opsahl & Dunnette




What relationship is there between the % of
incentive pay and performance?
What relationship is there between the absolute
amount of the incentive offered and performance?
Are small group incentives just as effective as
individual incentives?
Do small group incentives decrease the performance
of high performers?
13
Caveat: Quote of the Day
“A careful examination of criticisms of
monetary pay-for-performance systems
indicates not that they are ineffective,
but that they are too effective.” (p. 597)
Baker, Jensen, & Murphy (1988)
14
Finally, SO1: Three goals and three types of
equity related to each
1.
To attract and retain good employees - External equity
Are the salaries/pay of employees competitive with what other
companies are offering, both in the local community as well as in
the particular industry
2.
To insure that the salary attached to a particular job is
fair in terms of the importance of the job to the
organization - Internal equity
This goal has nothing to do with how well a particular individual
performs the job - it only relates to the relative worth of the job to
the organization (but influenced by supply and demand)
3.
To motivate and reward employees - Individual equity
Does the pay system encourage high performers? Are higher
performers paid more than lower performers?
(computer programmers vs. secretaries, Business and engineering profs vs psychology vs English, behavior analysts tend only to focus on 3) )
15
SO2: The Motivation Problem with
Hourly and Salary Pay

You get what you pay for
If you pay for hours, you get hours, not performance. Economically it
makes more sense for employees to take as much time as possible
to complete their work. And, if you can finagle overtime, all the better
(Overtime = 150% or 200% of base)

Consequences
In hourly wage systems, there are clear consequences for
performing below a minimally acceptable performance level
(criticism, threats of dismissal), but there are no clear consequences
for performing above that level. Thus, hourly wage systems tend to
support minimally acceptable performance
16
SO2: The Motivation Problem with
Hourly and Salary Pay

Merit pay hourly increases
Even if companies adopt a “merit pay” policy, there is still
a weak link between performance and pay.
Why? Merit pay is almost always based on annual
subjective performance appraisals. And, as indicated in
previous units, self-assessments often do not agree with
supervisory assessments (we rate ourselves higher than
our supervisors rate us); hence employees do not
believe their pay is related to their performance in a
meaningful way
17
SO3: Skinner on Incentives


We know, without a doubt that monetary
incentives will increase performance but
They have been given a bad rap - perhaps
for good reasons - many object to them

Primary reason - they are exploitative
And they can be, but they don’t have to be - don’t
throw the baby out with the bath water!
 Skinner maintained that incentive systems may, in
fact, be less aversive than hourly pay systems

18
SO3A: According to Skinner, what maintains
performance under hourly wage systems?
No one works on Monday morning because he is
reinforced by a paycheck on Friday afternoon. The
employee who is paid by the week works during the
week to avoid losing a standard of living which depends
upon a weekly wage. A supervisor who can discharge
him is an essential part of the system. Rate of work is
determined by the supervisor (with or without the pacing
stimuli of a production line), and special aversive
contingencies maintain quality. The pattern is therefore
still aversive.
Somewhat better contingencies are available under
schedules of reinforcement based on counters rather
than clocks. (ratio schedules of reinforcement)
(what Skinner is pointing out here is that hourly wage systems control behavior via aversive contingencies - use this as a defense of reward systems
19 in
general, by the way)
SO3B: Skinner on incentive systems


Skinner readily acknowledges that incentive systems can and have
been misused, but notes that incentive systems:
May evoke feelings of confidence, certainty of success, and
enjoyment arising from a sense of mastery and effectiveness, and
interest in the job as occurs when behaviors are frequently
reinforced.
Note that Skinner is not addressing performance issues here, but
rather addressing the fact that incentive systems may be less
aversive emotionally.
Also, note the italicized section - this is important


Incentive systems are no different in this respect than any type of
reinforcement system where individuals are frequently reinforced
Respondent behavior interpretation:
R (work) ––> Sr (incentives)
CS (incentives) ––> CR (feelings of confidence, etc.)
(anectodal - MI disposal aunt, happier, loyal, improved marriage; UNB proof operators, Kate acousted in grocery store - don’t hire anyone else))
20
SO4: Bucklin & Dickinson, intro, NFE



Bucklin and I were interested in determining whether
different types of monetary incentive systems affected
behavior differently (not whether incentives were
effective, we knew they were)
We discovered, as did Jenkins et al., simply was not a lot
of research
Only three thematic lines of research that have
investigated/manipulated parameters of incentive
systems



Percentage of incentive earned:
Schedules of reinforcement:
Per piece amount:
5 studies
8 studies
2 studies
21
SO4: Bucklin & Dickinson intro, cont, NFE
Three Thematic Lines

The percentage of total pay or base pay earned
in incentive pay


Schedules of reinforcement


3%-100% of total wages or base pay wages earned in
incentive pay
Incentives delivered on different fixed and variable
ratio schedules (CRF, FR2, VR2, VR4)
Linear, accelerating and decelerating piece rate
pay systems

Piece rate amount remains constant, increases or
decreases as the number of pieces completed
increases
22
SO4A: Conclusions
Will be provided in lecture
23
SO4B: Implications
It appears that you don’t have to worry a lot
about the details of how
incentives/consequences are related to
performance - as long as they ARE related
in some type of ratio schedule, delivered
fairly frequently, and supported by some
type of on-going feedback system.
24
SO5: Three reasons why it is not surprising that profit
sharing has not been shown to increase performance
(intro, NFE)

In the study objectives I describe some popular types of
“nontraditional” pay systems







Profit sharing
Gain sharing
Bonus or lump sum payments
Group incentive plans
Individual incentive plans
Pay for skill and knowledge
Employee stock ownership plans
25
SO5: Three reasons why it is not surprising that profit
sharing has not been shown to increase performance
(still intro, nfe)

First, note that I have not referred to all of these as
“incentive” systems or pay-for-performance plans


In order for me (Abernathy agrees) to classify a pay system as an
incentive or pay-for-performance system it must use a
predetermined formula to tie compensation to objective
performance, operational or economic measures.
This eliminates:
 Bonus and lump sum payments, pay for skill and knowledge,
and employee stock ownership plans
26
SO5: Three reasons why it is not surprising that profit
sharing has not been shown to increase performance
(still intro, nfe)


Of these, profit sharing is the most prevalent
Also represents the “other end of the continuum”
from individual incentives with respect to two very
important variables that affect performance



Number of individuals whose performance contributes
to the determination of how much money each
employee gets
Disbursement system - how frequently the money is
disbursed
So I am going to analyze this system, and you
can do similar analyses for the ones “in between”
(in any event, back to profit sharing)
27
SO5: Essential features of profit sharing (NFE)



When annual profits are above a predetermined
level, part of those profits are distributed to
employees
Formulas for distribution are quite complicated,
but usually the amount of money that is
distributed to any one employee is based on a
percentage of the employee’s salary, thus
employees do NOT get the same amount
The money is usually distributed annually, or
more commonly, placed directly into the
employee’s retirement account (tax benefits)
28
SO5: The first reason why profit sharing often
does not increase employee performance

Profits are based on the aggregate performance
of all members of the organization. Thus
(depending upon the size of the company) one
person’s performance contributes only a very
small proportion to the total performance of the
organization. Hence a person’s performance is
not strongly related to his/her pay.


Even with only 100 employees, any one individual’s
performance contributes only 1% to the total
performance of the organization
In small companies, however, profit sharing might just
affect performance
(in sos, but not explained adequately for the exam; mistake - it’s not that everyone gets a small $$)29
SO5: The second reason why profit sharing
often does not increase employee performance

Profits are often affected by factors that (a) have
little to do with the performance of individuals
and (b) are outside of their control such as include following in answer:

Mergers, acquisitions, building a new factory or plant,
investment of funds in research (bonuses highly
uncertain and unpredictable)

Union National Bank - the performance of the proof operators
actually had little to do with the overall profitability of UNB
(in sos but not explained adequately; what is the main factor that influences bank profits?)
30
SO5: The third reason why profit sharing often
does not increase employee performance

Annual distribution of profit-sharing bonuses or
distribution of money into retirement accounts

Simply too delayed to have much effect on
performance
31
Percentage of Base Pay or Total Pay Earned in
Incentive Pay
(next several SOs relate to the incentive percentage studies)
32
Percentage of Incentive


In many incentive systems employees
receive a base pay and can earn
additional money in incentives when
performance exceeds a specified standard
Given that the total amount that can be
earned remains constant, as the
percentage increases, more of a person’s
pay becomes dependent upon
performance
33
Incentives as a Percentage of Total Pay
Total Pay
Percentage
of Incentive
Hourly Pay
Incentive
Pay
$10.00
0%
$10.00
$0.00
$10.00
25%
$7.50
$2.50
$10.00
50%
$5.00
$5.00
$10.00
75%
$2.50
$7.50
$10.00
100%
$0.00
$10.00
34
Percentage of Incentive Studies:
Main Research Questions (NFE)


What is the lowest percentage of incentive
pay that affects performance?
Do different percentages of incentive pay
affect performance differently?
35
SO9: What’s the “magic” percentage of
incentive according to compensation experts?
Will be provided in lecture
(based on tradition - WWII, war labor relations board)
36
Authors
Riedel et al.
(1988)
Subjects
Percent of total or base pay
Forms
coded
0%, 25%, 50% 75%, 100%,
125% of base pay
College
students
Parts
assembled
0%, 3%, 11%, 20%, 35% of
total pay
(0%, 10%, 30%, 60%, 100%
of base pay)
Dickinson &
Gillette
(1993)
College
students
Data
entry,
computer
27%, 100%
of total pay
LaMere et al.
(1996)
Truck
drivers
Job points
earned
0%, 3%, 6%, 9%
of total pay
Matthews &
Dickinson
(2000)
College
students
Quality
inspection,
computer
0%, 10%, 100%
of total pay
Frisch &
Dickinson
(1990)
College
students
Task
37
SO10 : Employee perceptions of fairness
of incentive percentages
If employees do not have a high degree of control over
their performance, why are they likely to perceive high
percentages of incentive to be unfair?
 A sizable portion of their total earnings will be based
on factors outside of their control (i.e., can’t control
their own earnings much), and further,
 If those factors fluctuate from day to day or week to
week, their earnings will not be predictable

People have fixed living expenses:



Apt rent or home mortgage
Car payments
Expenses for kids
38
SO11: Employee perceptions of fairness
of incentive percentages

If employees do have a high degree of control over their
performance, why are they likely to perceive low
percentages of incentive to be unfair?
With low percentages of incentives, base pay constitutes
a relatively high portion of their total earnings and the
incentive earnings constitute a relatively low portion,
thus:
Differences in performance between individuals will not
be adequately reflected in differences in earnings


That is, low performers will earn just about as much as high
performers
Not related to the fact that individuals won’t make a lot more
money if they perform better - that is a satisfaction issue, not a
fairness issue: This is a common error by students on the exam!
(some have had trouble with this in the past)
39
Frisch & Dickinson, 1990


Participants: 75 college students
Five conditions


Hourly pay: (0% of pay)
Incentives:




Planned: 10%, 30%, 60%, or 100% of base pay
Actual: 3%, 13%, 25%, 54% of base pay (can’t calculate this
until after the study is over and you know how much
participants actually earned - we assumed participants would
perform better than they did)
Sessions: Fifteen 45-minute sessions
Task: Simple assembly task
Assembling parts from bolts, nuts and washers

Measure: Number of correctly assembled parts
40
25%
54%
3%
13%
Incentive pay
Hourly pay
Hourly pay
41
Summary of Results:
Frisch & Dickinson


Participants who were paid incentives
performed significantly better than those
who were paid hourly
Participants who were paid incentives
performed comparably, regardless of the
percentage

3%, 13%, 25%, and 54%
42
SO13A: The relationship between the amount
of pay earned and the percentage of incentive
Most $$
0%
3%
13%
25%
54%
Least $$
Inverse relationship between the amount earned and incentive percentage
43
SO13B: Why is that relationship important?

It helps answer the following two questions:

Did people perform better because they earned
more money?


In other words, does the total amount of money
earned affect performance? Is that a critical
determinant of performance?
Did people perform better because they
received more money per piece (per part
assembled?)

In other words, does the amount of the per piece
incentive affect performance?
(students have had trouble with this so in the past, so I want to start with this material - the actual answers are on the next slide)
44
SO13B: So, why is that relationship important?


Participants who earned incentives made
less money than those who were paid
hourly, but performed significantly better;
thus the total amount of money earned
cannot account for the higher performance
Participants in the four incentive groups
received different per piece incentives, yet
they performed the same, thus the per
piece incentive did not affect performance
45
SO 14: Frisch & Dickinson:
Particularly Interesting Results


Those who received only 3% of their
base pay in incentives - only 11¢ per 45minute session - performed significantly
better than those paid hourly
Higher percentages of incentives did not
result in better performance - rather
participants who earned different
percentages of incentives performed the
same
46
LaMere et al. Field Study, 1996, intro




There is actually only one study objective for the exam
over this study, but it was a very important study from our
perspective
We had found that
 a very low incentive percentage (3%) significantly
increased performance and
 higher incentive percentages did not increase
performance
Was that an artifact of the study being conducted in the
laboratory?
In the LaMere et al. field study we were able to examine
the effects of three incentive percentages (3%, 6%, and
9%) on the performance of actual workers
SO15: Lowest and highest incentive percentage examined?47
LaMere et al. Field Study, 1996, intro

Participants: 22 roll-off truck drivers


Deliver large waste disposal dumpsters to
commercial and construction sites
Multiple baseline design across 2 groups
Hourly pay: G1, 20 weeks; G2 34 weeks
 3% incentive: G1, 28 weeks, G2: 15 weeks
 6% incentive: Both groups, 39 weeks
 9% incentive: Both groups, 107 weeks

(collected data for almost 4 years!)
48
LaMere et al. Field Study

Incentive pay





Per job incentive for above average weekly
performance
Controlled for different types of jobs and the number of
miles driven
Lost incentives for the week for a chargeable accident
Received as part of weekly paycheck, but the amount
of incentives was listed separately on the pay stub
Feedback


Daily self-recorded feedback
Group performance was graphed weekly and publicly
posted
49
Results: LaMere et al.



Both groups significantly increased their
performance when the incentive system
was introduced
Both groups maintained their high
performance for the rest of the study
(almost 3 years)
Both groups performed comparably when
paid 3%, 6% and 9% incentives
50
Conclusions: LaMere et al.

Results supported our laboratory study
Small percentages of incentives, as low as
3% of total pay, can significantly increase
performance
 Higher percentages do not result in
incrementally better performance


Small percentages of incentives can
sustain performance over time (3%-9%)
51
SO17: Conclusions:
Percentage of Incentive Studies

Results of all five studies have been
consistent (3% - 100% of total pay)
Different incentive percentages resulted in the
same level of performance: that is, higher
incentive percentages have not increased
performance more
 Low percentages of incentive, as low as 3%,
have significantly increased performance

(I realize this is basically the same answer as the answer to SO14: why the results of Frisch & Dickinson were particularly interesting - but I wanted you
to note those results before we got to this point in the article.)
52
SO20: What is the major question
with respect to this research?
Feedback was readily available in every study
but one, thus the major question:
Did performance feedback sustain performance across
the incentive percentages? That is, if feedback was not
provided, would performance differ as a function of
different incentive percentages?
(skipping sos 18&19 - you can do those on your own)
53
Schedules of Reinforcement, intro



Results of comparisons of different schedules of
delivery (reinforcement) are ambiguous at best
Although incentive pay increased performance
in 7 of 8 studies, no uniform differences
emerged as a function of the schedule of
delivery
The preponderance of data from well controlled
laboratory studies, absent implementation
problems in the field, suggest that different ratio
schedules of delivery result in comparable
performance
54
SO21: Two factors that could account for the performance
differences in applied studies of ratio schedules (give example)

Although the data suggest that performance
does not differ under different schedules of
delivery, sometimes performance has been
better under one schedule than another


These differences have occurred only in applied
settings, not well controlled laboratory studies
What are the two factors?


Rule statements
Social contingencies
55
Example

Results were very different in two very
similar studies that compared hourly pay
with a VR schedules

In one workers performed better when paid
hourly than when they received the incentives
(Yukl & Latham, 1975)

In the other workers performed much better
when they received the incentives than when
they were paid hourly (Latham & Dossett, 1978)
56
Yukl & Latham: Hourly pay better



Participants were tree planters
Received a base pay
$4.00 on a VR2 for planting a bag of trees

VR2 was achieved by tossing a coin and
having workers guess “heads” or “tails”

Workers had a one-in-two (50%) chance of getting
the $4.00 each time, which probabilistically equals
a VR2 schedule
57
Yukl & Latham: Hourly pay better



Several workers believed that the coin toss was gambling
and the “devil’s doing” and sinful
One of the supervisors was a part-time minister who also
believed the above, and thus did not always implement
the coin toss as planned
One worker believed management had cheated her on
her taxes with respect to the incentives and told others


Management had made a mistake but by the time it was
discovered and fixed, the study was over
What the workers said about the incentives:



The VR schedule was “unfair”
“Too much of a risk”
“ A real let-down to lose after you have planted 1,000 trees” (one
bag = 1,000 seedlings)
(study conducted in the Bible belt in the south; yet in the other study…..)
58
Latham & Dossett: Incentives better



Participants were from the same company, but
were beaver trappers
Received a base pay
$4.00 on a VR4 schedule for each beaver
trapped

VR4 was achieved by placing four different colored
marbles in a bag and having workers guess the color
of the marble before they drew one

Workers had a one-in-four (25%) chance to be correct, which
probabilistically equals a VR4
59
Latham & Dossett: VR Incentives better


All workers gathered around while a worker
“guessed” the color of the marble and cheered
when he guessed correctly
What the supervisor said about the variable
schedule


The guys want to get on the variable schedule. The
men are inspired by it. They get a real kick out of it.
What the workers said about the schedule:



We really get psyched out by the variable, man
Like the variable, it adds something to the job
It makes the job more exciting and fun; there is real
excitement
60
SO22: Oah & Dickinson:
Linear vs Accelerated Piece Rate Pay

Does accelerated incentive pay affect
performance differently than linear
incentive pay?
Linear incentive pay: The employee earns the
same incentive pay regardless of how
productive he/she is
 Accelerated incentive pay: The employee
earns more and more incentive pay the more
productive he/she is

(SO: results - introduce the article)
61
Accelerated vs. Linear Pay, intro

Reward magnitude question:
The harder you run the harder it is to run
faster, therefore,
 Do employees perform better when they
receive increasingly more incentive pay for
higher and higher levels of performance?
(more technically, as response effort
increases, is more and more money required
to increase performance?)

62
Oah & Dickinson, 1992, intro



Modeled after the proof operator incentive
system at Union National Bank
Participants: 40 college students
Task: Data entry task
Checks of different cash values were
presented on the computer screen and Ps
entered the cash values
63
Oah & Dickinson, 1992, intro

Two conditions

Linear relation between performance and pay




Incentive amount remained the same
1.5 exponentially-increasing relation between
performance and pay
Sessions: Fifteen 45-minute sessions
Measure: Number of correctly completed
checks
64
65
SO22: Answer

Results
Participants in the two groups performed
comparably
 Participants in the 1.5 exponential group
earned significantly more money


Conclusions
Linear and accelerated incentive pay did not
affect performance differently (more piece rate
pay was not better)
 The amount of incentive pay did not affect
performance differently

66
SO26: Two factors that influence satisfaction ratings
with different types of incentive pay plans

Exposure to all of the pay systems you are going to ask
employees about (behavioral choice is the best method
to obtain satisfaction data)



If you use a between group design and each participant is
exposed to only one pay system and then asked to rate his/her
satisfaction with it, you get different ratings than if each
participant is exposed to all pay systems before rating his/her
satisfaction with it
Makes sense - participants can only make meaningful ratings
and comparisons after exposure to the different pay systems
Probably true for other types of interventions as well - not just
pay systems, so it is a good thing to keep in mind when doing
research
(no consistent data with respect to employee satisfaction with different types of pay systems - fixed vs incentive or different types of incentive pay)
67
SO26: Two factors that influence satisfaction ratings
with different types of incentive pay plans

The amount of money employees earn under the
different pay systems - not surprisingly, “The pay system
I like best is the one where I earn the most money.”



It is VERY difficult to equalize the amount of money individuals
earn under various pay conditions and systems
The optimal situation would be where a person earns, let’s say,
$6.00 an hour when paid hourly and $6.00 an hour when paid
incentives
With incentive systems, however, a person’s performance
determines how much he or she will earn, and it is very hard to
predict how well a person will perform when you are setting up
the incentive rates at the beginning of a study
(this is very influential factor and one that makes it difficult to assess employee satisfaction with different pay systems)
68
SO24: Do results from the lab
generalize to actual work settings?

Reviews of incentive studies, though few in
number, have indicated that the results of field
studies and laboratory studies are similar



Jenkins (1986), Jenkins, Mitra, Gupta & Shaw (1998)
Hantula (2001)
We have found similarities as well


Frisch & Dickinson (1990)
LaMere, Dickinson, Henry, Henry & Poling (2000)


In both, performance increased significantly when participants
received only 3% of their total or base pay in incentives
In both, higher percentages of incentives did not increase
performance further
(as I indicated earlier - important!!)
69
SO24: Also true for other IVs

Locke, E. A. (1986) (Ed.). Generalizing from laboratory to
field settings. Lexington, MA: D.C. Heath & Company




Each article in the book analyzed the extent to which the results
of laboratory and field studies were similar for a particular
performance improvement intervention
When there was sufficient data to make the comparison, every
review reported that the results in laboratory and field settings
were similar
True for monetary incentives, feedback, goal setting, training,
participation (among others)
Interestingly, the author who reviewed feedback (Kopelman)
reported that while the general effects of feedback were the same
in both settings, the effects of feedback were actually less in lab
studies; that is, the results from the laboratory underestimated the
extent to which feedback affected performance in actual work
settings

This makes sense - why, based on what you learned about feedback
in U6?
(next slide, quote from Locke)
70
SO24: Quote from Locke, p. 6 (NFE)
Both college students and employees appear to
respond similarly to goals, feedback, incentives,
participation, and so forth, perhaps because the
similarities among these subjects (such as in values)
are more crucial than their differences. Task differences
do not seem to be overwhelmingly important. Perhaps
all that is needed is that the participants in either setting
become involved in what they are doing.
(handy book to know about)
71
SO25: Honeywell-Johnson et al. article

Purpose of the study (NFE)


To compare the effects of individual and small
group monetary incentives on the performance
and satisfaction of high performers
Secondary purpose

To assess the feasibility of using simulated
groups to examine the effects of small group
incentives on performance
(we examined small group incentives, but results may well generalize to any type of performance consequence that is dependent upon the group’s performan
grade on a project or in a class??)
72
SO25A: Conceptually why might individual incentives control
performance more effectively than small group incentives?


When individuals are paid individual incentives, the
amount of pay they earn is directly dependent on their
own performance. Thus, they have complete control over
what they earn
With small group incentives, the amount of pay workers
receive is not only dependent on their own performance,
but on the performance of others in the group. Thus,
they can’t influence their earnings to the same extent as
they can when they are paid individual incentives
(both points are important)
73
SO25B: On the other hand, why might small group incentives control
performance just as well as individual incentives?


When the group is small, certainly when the group is
only 2 – 3 members, the individual can still greatly
influence the performance of the group, and hence his or
her pay. There is still a pretty tight contingency between
performance and pay (Malott’s certainty factor?).
But, as the group size increases, the individual’s
contribution to the group’s performance becomes less
and less, and earnings are not as dependent upon their
own performance
74
SO26: Summarize the results of studies that have compared individual
incentives and equally-divided small group incentives, intro



Equally-divided small group incentives are the most
common type of small group incentives in business and
industry
The incentives that a person gets depends upon how
well the entire group performs
Each individual in the group gets the same amount of
incentive, regardless of his or her contribution

For example, if a group completes an average of 100 widgets
per hour during the week, each member earns an additional
$100.00 per week in incentives ($1.00 per widget in the average)

If one worker averages only 90 widgets per hour and another
averages 110, they both get the same amount of incentive
(include range of participants in the small groups in these studies - this is important)
75
SO26: Summarize the results of studies that have compared individual
incentives and equally-divided small group incentives, intro




Only five studies have compared performance when
individuals were paid individual incentives and when
they were paid small group incentives
Groups have ranged in size from 2 - 12 members
In 4 of the 5 studies, equally-divided small group
incentives sustained performance as well as individual
monetary incentives
While there are not a lot of satisfaction data available,
when satisfaction was examined, participants reported
that they were equally satisfied with the individual and
small group incentives
(include range of participants in the small groups in these studies - this is important)
76
SO27A: When would an individual be expected to
perform the same when paid individual incentives and
small group incentives and why?


When all members of the small group, including
the individual, perform at approximately the
same level
Why?
 If all group members perform at approximately
the same level, then their pay would not differ
much when they were paid individual
incentives and when they were paid small
group incentives
(this seems to be a difficult notion for students to understand: example on next slide)
77
SO27A: When would an individual be expected to
perform the same when paid individual incentives and
small group incentives and why?

If all group members perform at approximately the same level, then
their pay would not differ much when they were paid individual
incentives and when they were paid small group incentives
 Assume: under the individual incentive condition, a person is paid
10¢ per widget assembled. If the individual assembled 50 widgets,
he or she would earn $5.00 in incentive pay
 Assume: under the group incentive condition, each individual gets
paid 10¢ per widget based on the average performance of the
members of the group. If each individual in a 5-person group
assembled 50 widgets the total number of widgets assembled by
the group would be 250, and the individual would still earn $5.00
in incentive pay


250/5 = 50, 50 X 10¢ = $5.00
Essentially, the pay contingency is the same for the above individual
whether or not he or she is paid individual or small group monetary
incentives. We analyze contingencies from the perspective of the
behaver.
(we know, as does the individual of course, that they are being paid either individual or small group incentives, but if they get paid the same, the contingency
78
between their performance and pay is the same under both pay systems)
SO27B: When would an individual be expected to perform better
when paid individual incentives and perform worse (decrease
performance) when small group incentives? Why?


When an individual was a high performer in comparison to
the other members in the group
Why?
 A top performer would earn less money when he or
she was paid small group incentives than when she or
she was paid individual incentives because of the
lower performance of the other members of the group
 Hence, over time, the high performer may decrease his
or her performance because his or her earnings
decrease
(example on the next page)
79


SO27B: When would an individual be expected to perform better
when paid individual incentives and perform worse (decrease
performance) when small group incentives? Why?
Assume: under the individual incentive condition, a person is paid 10¢
per widget assembled. If the individual assembled 50 widgets, he or
she would earn $5.00 in incentive pay
Assume: under the group incentive condition, each individual gets paid
10¢ per widget based on the average performance of the members of
the group.
Also, now assume each of the other individuals in a 5-person group
assembled 35 widgets. The total number of widgets assembled by the
group would be 190 (4 members X 35 = 140, plus the 50 widgets
assembled by the top performer).
The individual would only earn $3.80 in incentive pay.


190/5 = 38, 38 X 10¢ = $3.80
Our top performer thus may perform lower when paid small group
incentives than when paid individual monetary incentives

Recognizing of course that if he or she did increase performance, he or
she would earn even less money in incentives. For example, if our top
performer now only assembled 35 widgets, he or she would earn only
$3.50 in incentive pay - however, the small difference between $3.50 and
$3.80 might not be sufficient to keep our top performer making 50 widgets
80
SO27: Thought question (NFE) - what are the
implications of this analysis for team/group projects in
classes or business settings?

Anyone want to share his or her thoughts
on this?
81
Honeywell-Johnson et al., intro (NFE)


Participants were 4 college students
Task was a computerized task with four subtasks presented simultaneously



Memory task, arithmetic task, visual monitoring task
and an auditory monitoring task
DV: points earned for correct responses
Design: ABCB, 5-10 2-hour sessions per phase



A = hourly pay with feedback
B = individual incentives with feedback
C = small group monetary incentives
82
Honeywell-Johnson et al., intro (NFE)

Group incentive condition

Participants were told that they were members of a 10-person
group and their data would be combined with the point scores of
the other nine members to determine the amount of incentive




Worked on networked computers to increase “believability” of this
deception
At the end of the study, each participant was asked how many
members were in their group, and all responded “10”
Their comments (some rather nasty and hostile) during the group
incentive condition indicated they believed they were in a group of
10
The group’s average performance was contrived/calculated in a
manner that insured that the participant’s performance was
always quite a bit higher than the group’s average performance
83
SO28: Results of the study and
what they indicate


Three of the four participants performed
an average of 14% lower (12%, 14%, and
16%) when they were paid small group
monetary incentives than when they were
paid individual incentives
The data suggest that high performers are
indeed likely to decrease their
performance when paid small group
monetary incentives (with N=10 members)
84
SO29

29A: Which of the three pay systems did all four
high performers prefer?

All preferred the individual monetary incentive system


Even though they found the individual incentive system to be
more stressful than the hourly pay condition (which was the
least stressful of all three)
All four said they preferred the individual monetary incentive
system because they earned the most money


While this is a confound - it is also the case that in actual work
settings high performers would always earn more when they were
paid individual incentives than when they were paid small group
incentives, so I am not overly concerned about this confound
29B: Which of the three pay systems did the
majority of performers (3 of 4) find to be the most
stressful?

The small group monetary incentive system
85
SO29, NFE, but interesting…

The preference data are interesting
Most people would probably assume that the individual
incentive pay would be the most stressful of the three
pay systems, yet three of the four reported that the
group incentive system was the most stressful
 Also, in spite of the fact that three of the four
participants found the hourly pay to be the least
stressful, all four preferred the individual incentive pay
We have confirmed the effects of group incentives on high
performers in a subsequent study conducted by Dr.
McGee as her doctoral dissertation. It has been published
in the Performance Improvement Quarterly (ISPI funded
the research)


86
QUESTIONS OR COMMENTS?
87
Theory behind profit-sharing


Profit-sharing was not originally developed to increase
employee performance; rather it is based on “macroeconomic theory” (good of the company and the society)
Profit-sharing would increase the flexibility of labor costs
for organizations (not decrease labor costs)
 When profits went up, labor costs would go up
 When profits went down, labor costs would go down



When profits were down, profit-sharing was supposed to
protect the company by automatically decreasing labor costs
Protect the employees because the company could afford to
keep more employees rather than lay them off
Ultimately, both of the above would protect the country’s
economy

Fewer people would lose their jobs and prevent the economy
from a deeper recession
88
However, the catch….
Cost savings to companies was based on the
notion that the base wages of employees would
be below market value. When profits were high,
employee wages would be above market value;
when profits were low, employee wages would
be below market value. It has not worked out that
way - rather predictably, perhaps, profit-sharing
has become “gravy.” Base salaries are at market
value, so companies do pay out more when
profits are good, but don’t recoup sufficient labor
costs when profits go down.
89