Companies have more tools at their disposal now than ever before to elicit improved employee performance, but are the basics of meaningful work being forgotten? A study of Chinese administrative workers sought to examine the importance of job meaningfulness to workers, as well as both financial and recognition incentives on employee performance. All three factors were found to positively impact performance, with meaning found to be most significant in eliciting the greatest performance gains. These factors were also found to interact with each other in interesting ways.
Key Topics: Job meaning; Financial rewards; Recognition; Employee performance
Title of Reviewed Article: The Effects Of Financial And Recognition Incentives Across Work Contexts: The Role Of Meaning
Researchers: Michael Kosfeld (Goethe University), Susanne Neckermann (Erasmus University), and Xiaolan Yang (Zhejiang University).
Publication: Economic Inquiry, 2017, Vol. 55 No. 1, pp. 237–247.
Setting the Scene
Studies have highlighted many ways in which employee performance can be affected by different factors, both internal and external to the individual. While financial incentives have long been touted as a key motivator for employees (Prendergast 1999), non-financial recognition, such as verbal feedback (e.g., performance feedback; employee of the month), have also come to be seen as powerful motivators (Tran & Zeckhauser, 2012), although research further suggests that the impact of these motivators can differ across situations and individual dimensions (Gubler, Larkin, & Pierce, 2013).
One such dimension is the perceived meaningfulness of work, which refers to the level to which a task has a perceived point or purpose, with studies indicating that it plays a central role in the determination of employee performance (Ariely, Kamenica, & Prelec, 2008; Grant, 2008). To gain further insight into this area, the present study looked to examine the effect of financial incentives and recognition on performance across tasks with different levels of meaning, and put forward three hypotheses for investigation.
Hypothesis 1 – “In the absence of recognition or monetary incentives, average performance is higher in the high meaning condition compared to the low meaning condition.”
Hypothesis 2 – “Monetary incentives increase average performance in both meaning conditions; because performance is private, crowding-out effects are expected to be small.”
Hypothesis 3 – “Recognition increases average performance. The interaction effect with meaning is ex-ante ambiguous: (a) if meaning increases the value of awards, the effect of awards should be higher in the high meaning condition; (b) if, however, the meaning of a task has image value itself, symbolic awards work less well in the high meaning condition.”
How the research was conducted
This study was carried out in 2011 in collaboration with the Social Survey Research Center of Zhejiang University, China.
413 workers were hired for a one-off 2-hour data entry job, which consisted of transferring information from completed paper based survey submissions on parent-child relationships of migrant workers in China into an electronic database. Each worker was given 20–30 surveys and each survey consisted of 151 primarily multiple-choice questions.
For experimentation purposes, workers were placed in one of six task conditions. In a ‘high task meaning’ condition, workers were informed that their data entry work would be directly used for the analysis of the survey research project. While in a ‘low task meaning’ condition, workers were informed that their data entry was purely a quality check of already entered data and was unlikely to ever be used for the final analysis of survey research project.
In addition to these two task meaning conditions, workers were also segmented based on how they were rewarded for their works. Workers were paid either a fixed wage (baseline), a fixed wage plus piece rate per completed survey (monetary incentive), or a fixed wage plus the most productive workers receiving a symbolic reward award (smiley button) at the end of the work period (recognition).
Following the work period, workers were asked to complete a questionnaire relating to their experience of the job, including satisfaction levels with the job and their rewards.
Key Research Findings
Strong support was found for Hypothesis 1, with the results indicating that increasing the meaning of the task led to significantly higher worker performance. Workers in the low meaning conditions entered 1598 answers on average, while those in the high meaning conditions entered 1845 answers, a difference of 16%.
Monetary incentives were found to increase performance in both the low and high meaning conditions, and as such Hypothesis 2 was supported. Under both high and low meaning conditions, workers increased performance to a greater extent when receiving a piece rate versus when they were only paid a fixed wage, with performance increasing to a greater extent under low meaning conditions. Monetary incentives were found to increase performance by 9% on average, which is significantly less than the effect of task meaning.
Recognition was found to increase performance only under low task meaning conditions. Under low meaning conditions, the presence of recognition increased performance by 18%, while under high meaning conditions there was no notable effect on performance. While recognition did not increase performance when meaning was high, similarly an increase in meaning had no effect on recognition. These results support Hypothesis 3b, while rejecting Hypothesis 3a.
Consistent with prior studies, the results indicate that meaning, recognition, and financial incentives can all encourage greater levels of employee performance under certain conditions, with meaning and recognition having the strongest effect on performance.
Interestingly, meaning and recognition were found to act as substitutes for each other under certain conditions, with the combination of meaning and recognition together not serving to increase performance to a greater extent than either in isolation. This is contrary to the idea that these motivators operate independently of each other. These findings are consistent with image-reward theory (Bénabou & Tirole 2006), which suggests that there is a close relationship between these factors.
On the other hand, there was no interaction effect found between meaning and financial incentives, with these motivators having similarly positive effects on performance regardless of whether the other motivator was present or not. This finding is consistent with prior research (Ariely, Bracha, & Meier, 2009), which indicated that monetary incentives can increase performance when intrinsic motivation is either high or low.
Organizational and Reward Implications
The results point to the importance of meaning to employees in generating higher levels of performance and that monetary incentives are strong and reliable motivators at different levels of meaning, while recognition can lead to positive performance effects in the absence of high job meaningfulness.
The idea that recognition and meaning can lead to significant performance gains should be of particular interest to companies as these are motivators that typically have minimal cost in monetary terms. To encourage these motivators, companies should endeavor to provide employees with a strong understanding of the important role and value of their work in company success.
However, companies should also not lose sight of the effect that monetary incentives can have on performance. While the results demonstrate that nonmonetary rewards may be more cost effective in certain situations, monetary rewards have been shown to be effective consistently across different contexts, and in the case of this study, in both low and high meaning contexts.
This study helps in developing our understanding of job meaning, as well as recognition and monetary rewards, in shaping the motivation and performance of employees. How these factors interact also provides valuable insight into ways in which companies can most effectively manage performance. It is hoped that future research builds on the results of this study and examines the role of further contextual factors and incentives in eliciting higher employee performance levels.
Source Article: Kosfeld, M., Neckermann, S. & Yang, X. (2017). The Effects Of Financial And Recognition Incentives Across Work Contexts: The Role Of Meaning. Economic Inquiry, 55(1) 237–247.
Published by: John Wiley & Sons, Inc.
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Ariely, D., Kamenica, E., & Prelec, D. (2008). Man’s Search for Meaning: The Case of Legos. Journal of Economic Behavior & Organization, 67(3-4), 671–677.
Ariely, D., Bracha, A., & Meier, S. (2009). Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially. American Economic Review, 99(1), 544–555.
Bénabou, R., & Tirole, J. (2006). Incentives and Prosocial Behavior. American Economic Review, 96(5), 1652–1678.
Grant, A. (2008). The Significance of Task Significance: Job Performance Effects, Relational Mechanisms, and Boundary Conditions. Journal of Applied Psychology, 93(1), 108–124.
Gubler, T., Larkin, I., & Pierce, L. (2013). The Dirty Laundry of Employee Award Programs: Evidence from the Field. Harvard Business School Working Paper 13-069.
Prendergast, C. (1999). The Provision of Incentives in Firms. Journal of Economic Literature, 37(1), 7–63.
Shearer, B. (2004). Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment. Review of Economic Studies, 71(2), 513–534.
Tran, A., & Zeckhauser, R. (2012). Rank as an Inherent Incentive: Evidence from a Field Experiment. Journal of Public Economics, 96(9-10), 645–650.
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