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On The Relative Efficiency Of Performance Pay And Noncontingent Incentives

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  • Uri Gneezy
  • Pedro Rey-Biel

Abstract

We report evidence from a large field experiment that compares the effectiveness of contingent and noncontingent incentives in eliciting costly effort for a large range of payment levels. The company with which we worked sent 7,250 letters asking customers to complete a survey. Some letters promised to pay amounts ranging from $1 to $30 upon compliance (contingent incentives), whereas others already contained the money in the request envelopes (noncontingent incentives). Compared to no payment, very small contingent payments lower the response rate while small noncontingent payments raise the response rate. As expected, response rates rise with the size of the incentive offered. The response rate in the noncontingent incentives rises more rapidly for low amounts of incentive, but then flattens out and reaches lower levels than under contingent payments. We discuss how the optimal policy regarding the use of each size and type of incentives crucially depends on firms’ objectives.

Suggested Citation

  • Uri Gneezy & Pedro Rey-Biel, 2014. "On The Relative Efficiency Of Performance Pay And Noncontingent Incentives," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 62-72, February.
    • Handle: RePEc:bla:jeurec:v:12:y:2014:i:1:p:62-72
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    File URL: http://hdl.handle.net/10.1111/jeea.12062
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    Cited by:

    1. Kast, Felipe & Meier, Stephan & Pomeranz, Dina, 2018. "Saving more in groups: Field experimental evidence from Chile," Journal of Development Economics, Elsevier, vol. 133(C), pages 275-294.
    2. Julian Conrads & Tommaso Reggiani & Rainer Michael Rilke, 2015. "Reducing Ambiguity in Lotteries: That Knowing is Better than Wondering," Cologne Graduate School Working Paper Series 06-03, Cologne Graduate School in Management, Economics and Social Sciences.
    3. Córdova, Angélica & Imas, Alex & Schwartz, Daniel, 2021. "Are non-contingent incentives more effective in motivating new behavior? Evidence from the field," Games and Economic Behavior, Elsevier, vol. 130(C), pages 602-615.
    4. Benjamin Artz & Colin P. Green & John S. Heywood, 2021. "Does performance pay increase alcohol and drug use?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(3), pages 969-1002, July.
    5. Selay Sahan & Euan Phimister, 2022. "Worker Incentives in the Banking Industry," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(2), pages 259-284, April.
    6. Christiane Bradler & Susanne Neckermann, 2019. "The Magic of the Personal Touch: Field Experimental Evidence on Money and Appreciation as Gifts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1189-1221, July.
    7. Zlatev, Julian J. & Rogers, Todd, 2020. "Returnable reciprocity: Returnable gifts are more effective than unreturnable gifts at promoting virtuous behaviors," Organizational Behavior and Human Decision Processes, Elsevier, vol. 161(S), pages 74-84.
    8. Abel, Martin & Burger, Rulof, 2022. "Choice over Payment Schemes and Worker Effort," IZA Discussion Papers 15769, Institute of Labor Economics (IZA).
    9. Drupp, Moritz A. & Khadjavi, Menusch & Quaas, Martin F., 2019. "Truth-telling and the regulator. Experimental evidence from commercial fishermen," European Economic Review, Elsevier, vol. 120(C).
    10. Mirco Tonin & Michael Vlassopoulos, 2015. "Corporate Philanthropy and Productivity: Evidence from an Online Real Effort Experiment," Management Science, INFORMS, vol. 61(8), pages 1795-1811, August.
    11. Bradler, Christiane & Neckermann, Susanne, 2016. "The magic of the personal touch: Field experimental evidence on money appreciation as gifts," ZEW Discussion Papers 16-043, ZEW - Leibniz Centre for European Economic Research.
    12. Michel André Maréchal & Christian Thöni, 2019. "Hidden Persuaders: Do Small Gifts Lubricate Business Negotiations?," Management Science, INFORMS, vol. 65(8), pages 3877-3888, August.
    13. Delfgaauw, Josse & Dur, Robert & Souverijn, Michiel, 2017. "Team Incentives, Task Assignment, and Performance: A Field Experiment," IZA Discussion Papers 11228, Institute of Labor Economics (IZA).
    14. Minnich, Aljoscha & Rau, Holger A. & Schlüter, Jan, 2020. "The effects of financial and non-financial incentives on the demand for a sustainable DRT system," University of Göttingen Working Papers in Economics 394, University of Goettingen, Department of Economics.
    15. Blanco, Esther & Haller, Tobias & Walker, James M., 2018. "Provision of environmental public goods: Unconditional and conditional donations from outsiders," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 815-831.
    16. Aurélie BONEIN, 2014. "Social Comparison and Peer effects with Heterogeneous Ability," Economics Working Paper Archive (University of Rennes & University of Caen) 201411, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    17. Tanjim Hossain & King King Li, 2014. "Crowding Out in the Labor Market: A Prosocial Setting Is Necessary," Management Science, INFORMS, vol. 60(5), pages 1148-1160, May.
    18. Ayala Arad & Amnon Maltz, 2022. "Turning on Dimensional Prominence in Decision Making: Experiments and a Model," Management Science, INFORMS, vol. 68(8), pages 6075-6099, August.

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