PSY 6450
Unit 6
Performance and Pay
1
Schedule
Today and Monday, Lecture
 Exam on Wednesday, 11/06

2
A Little Introduction
Over the years, much of my research has examined the
effects of individual and small group monetary incentives
on employee performance and satisfaction
 Most of this work is “bridge/translational” research


3
Laboratory simulations that address practical questions from
organizational settings
How I Got My Start:
The Practical Beginning
 Union

Individual monetary incentive systems implemented in early
1980s


National Bank, Little Rock, AR
William B. Abernathy, H. Hall McAdams, Wayne Dierks, Kathleen
McNally
By the late 1980s, 75 systems had been installed, covering
70% of the bank’s 485 employees


Productivity increases of 200%-300%
Net profit per employee $11,000 compared to $4,950 for other Little
Rock banks
 Program

4
committee for ABA
While scheduling, call from someone important
(Aamodt mentions UNB)
How I Got My Start:
The Academic Beginning

The role of financial compensation in industrial
motivation
Opsahl & Dunnette (1966)

5
Appealed to researchers to conduct controlled
laboratory studies because:
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)
6
Individual Monetary Incentives:
Research Since 1966*
 In
1986, 20 years later: only 28 systematic
studies of individual monetary incentives
Jenkins (1986)
 12
years after that: 39 systematic studies of
individual monetary incentives, lab & applied
Jenkins et al. (1998)




Meta-analytic review
Individual incentives had an overall effect size of .34 (medium)
Studies conducted by operant/expectancy researchers had
stronger effects than goal-setting or cognitive
Situation remains pretty much the same in 2013
*excludes survey studies
7
(interesting – we know how to set up contingencies – note one category for OBM/expectancy)
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
8
Prevalence in Business:
Individual Monetary Incentives

90% of Fortune 1000 companies have some type of
individual incentive plan

47% of 1045 companies surveyed by Hewitt had individual
incentive plans

9
Rewards were based on specific
employee performance criteria
Prevalence in Business:
Group Monetary Incentives

87% of Fortune 1000 companies have work group or team
incentives

Fortune 1000 companies increased their use of work
group or team incentives by 50% during the past decade
10
Effectiveness of monetary incentives





Stajkovic & Luthans (2003) conducted a meta-analysis to
determine the effectiveness of money, social recognition,
and feedback on performance in applied studies
Money improved performance 23%
Social recognition improved performance 17%
Feedback improved performance 10%
The combination of all three improved
performance 45%
11
(would be interesting to compare money vs. other types of tangible rewards)
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




12
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?
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)
13
Finally, SO1: Components of a compensation
plan








Security
Base pay (market value and job evaluation)
Benefits
Adjustments
Location (NYC vs. upstate NY)
Shift
Incentive: motivate and reward employees
Variable Pay



14
Individual
Group (Aamodt does not include this)
Organizational
(computer programmers vs. secretaries, Business and engineering profs vs psychology vs English, behavior analysts tend only to focus on 3) )
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
15
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


16
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
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)
17
(what Skinner is pointing out here is that hourly wage systems control behavior via aversive contingencies - use this as a defense of reward sys
general, by the way)
SO3B: Skinner on incentive systems


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.)
18
(anectodal - MI disposal aunt, happier, loyal, improved marriage; UNB proof operators, Kate acousted in grocery store - don’t hire anyone else
SO4: Descriptions of popular pay plans
(NFE)


I just want to reassure you, I will not ask you any
questions over this material, but I wanted to explain
them to you since Aamodt did mention them
In SO6, I will talk a bit about profit sharing
19
SO5: Why is merit pay often unpopular and
not likely to improve performance?

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. Two issues:
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
Supervisors may inflate ratings due to factors that are
unrelated to the employee’s performance – usually giving
higher evaluations- increase pay, increase positive
relations/avoid negative relations
20
(oppose each other)
Bucklin & Dickinson, intro, NFE



Barbara and I were interested in determining whether different
types of monetary incentive systems affected performance
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



21
Percentage of incentive earned:
Schedules of reinforcement:
Per piece amount:
5 studies
8 studies
2 studies
Bucklin & Dickinson intro, cont, NFE
Three Thematic Lines
 The
percentage of total pay or base pay earned in
incentive pay

3%-100% of total wages or base pay wages earned in
incentive pay
 Schedules

of reinforcement
Incentives delivered on different fixed and variable ratio
schedules (“CRF”, “FR2”, “VR2”,VR4”)
 Linear, accelerating
systems

22
and decelerating piece rate pay
Piece rate amount remains constant, increases or decreases
as the number of pieces completed increases
SO6A: Conclusions, for exam
Incentives increase performance
 The critical determinant of performance is the ratio
schedule contingency between performance and pay; that
is, that



Individuals earn a specified amount of money for the number of
work units they complete
Variations in the parameters of the incentive system do
not appear to affect performance differently
23
(quite unexpected - simple rule, the harder I work, the more I earn)
SO6B: Implications
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
SO7: Three reasons why it is not surprising that
profit sharing often does not increase performance
 Profit
sharing is the most prevalent of the variable pay
plans
 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”
25
SO7: Essential features of profit sharing
 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)
26
SO7: 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.


27
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 $$)
SO7: 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

Mergers, acquisitions, building a new factory or plant,
investment of funds in research, product recalls making
bonuses uncertain and the amount unpredictable (include
these examples in your answer)

28
Union National Bank - the performance of the proof operators
actually had little to do with the overall profitability of UNB
(what is the main factor that influences bank profits?)
SO7: 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

29
Simply too delayed to have much effect on performance
Percentage of Base Pay or Total Pay Earned in
Incentive Pay
30
(next several SOs relate to the incentive percentage studies)
Percentage of Incentive
In most 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

31
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
32
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?

33
SO10: What’s the “magic” percentage of
incentive according to compensation experts?
 Magic
number is 30%
 Performance
will not be affected if the percentage is less
than 30%
 Performance will not be appreciably higher if the
percentage is greater than 30%
34
(but in article; based on tradition - WWII, war labor relations board)
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)
35
College
students
Task
SO11 : 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? And perhaps even moderate
percentages?
 A sizable portion of their total earnings will be based on
those factors, 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:



36
Apt rent or home mortgage
Car payments
Expenses for kids
Frisch & Dickinson, 1990
 Participants: 75
 Five


college students
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
37
of correctly assembled parts
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


38
3%, 13%, 25%, and 54% of base pay
(graph next)
Mean number of quality parts
25%
54%
3%
13%
Incentive pay
Hourly pay
Hourly pay
Sessions
39
SO13A: The relationship between the amount
of pay earned and the percentage of incentive
Most $$
0%
3%
Mean dollars earned
13%
25%
54%
Least $$
Sessions
Inverse relationship between the amount earned and incentive percentage
40
SO13B: Why is that relationship important?

It helps answer the following two questions:

Did people perform better because they earned more money?


Did people perform better because they received more money
per piece (per part assembled?)

41
In other words, does the total amount of money earned affect
performance? Is that a critical determinant of performance?
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)
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

42
(in the past, this has given students some trouble; material in italics is important)
SO14: Frisch & Dickinson:
Particularly Interesting Results
Those who received only 3% of their base pay in
incentives - only 11¢ per 45-minute 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

43
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
In Frisch & Dickinson 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?
44
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




45
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!)
Roll-off Trucks
46
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


47
Daily self-recorded feedback
Group performance was graphed weekly and publicly posted
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

48
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%)
49
SO17: Conclusions:
Percentage of Incentive Studies

Results of all five studies were 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.)
50
SO17: Contrasting results, Oah & Lee,
2011 (this part of the SO, NFE)


Workers in a simulated study (N=4) were more productive
when they earned 100% of their pay in incentives than when
they earned 10% of their pay in incentives
Conducted the study because they felt our laboratory
simulation was faulty


51
Our sessions and study were too short
 In this study 4 participants attended 30 six-hour sessions
Our alternate off-task activities (computer games) were not
sufficiently reinforcing (if there is nothing else interesting to do,
participants may spend all of their time “working” which may mask
any differences between/among incentive amounts)
 Allowed access to the internet
 Selected two pairs of friends who worked at the same time to
increase the likelihood of socializing as an off-task activity
(doesn’t account for LaMere et al. but % increases were not experimentally controlled)
SO17: Contrasting results, Oah & Lee,
2011 (this part of the SO, NFE)

Different results may be due to the fact that actual
percentage of incentives for the 10% group was too low



Different results may be due to his experimental design
which was an alternating treatments design – contrast
effects


52
Ps in that group actually only earned an average of 1.6% of their pay in
incentives
1.6% incentives were too low: 2 Ps performed the same under 1.6%
and hourly; and when group data were statistically analyzed, no
statistically significant difference between 1.6% and hourly
Within-subject vs. group designs: Komaki & Goltz, 2001
Important research question that needs to be examined
(interesting to follow-up; moving to schedules of reinforcement)
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
53
SO19: 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


54
are the two factors?
Rule statements
Social contingencies
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 better when they received the
incentives than when they were paid hourly (Latham & Dossett,
1978: study from last week)
55
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”

56
Workers had a one-in-two (50%) chance of getting the $4.00 each time,
which probabilistically equals a “VR2” schedule
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:



57
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…..)
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

58
Workers had a one-in-four (25%) chance to be correct, which
probabilistically equals a VR4
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



59
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
SO20: Oah & Dickinson:
Linear vs Accelerated Piece Rate Pay
Four generations of behavior analysts, ABAI, 2009!
Rich O’Brien,
My undergraduate advisor
Shezeen Oah,
My first Ph.D. student
60
Dr. Oah’s
Graduate students
Chung Ang University
Seoul, Korea
SO20: 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

61
(SO: results - introduce the article)
Accelerated vs. Linear Pay, intro

Reward magnitude question:


62
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?)
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
SO20: Results and important
conclusions

Results



Participants in the two groups performed comparably
Participants in the 1.5 exponential group earned significantly
more money
Conclusions


66
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 (similar to the incentive percentage studies)
(again, for some reason, a few students have missed this)
SO21: 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)



67
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 pa
SO21: 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.”



68
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)
SO22: 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)
Anderson, Lindsay, & Bushman (1999)
 We


Frisch & Dickinson (1990)
LaMere, Dickinson, Henry, Henry & Poling (2000)


69
have found similarities as well
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!!)
SO22: Also true for other IVs in IO

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

70
This makes sense - why, based on what you learned about feedback in U4 and
U6?
(next slide, quote from Locke)
SO22: 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.
71
(handy book to know about)
SO23: 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
(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?? This is why I added group incentives to Aamodt’s classification of individual and organizational: to us, size of group is impor
72
SO23A: 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
73
(both points are important)
SO23B: 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 contingent upon performance
74
SO24: 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)

75
If one worker averages only 90 widgets per hour and another averages 110,
they both get the same amount of incentive
SO24: Summarize the results of studies that have compared
individual incentives and equally-divided small group incentives (for
exam)




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
76
(include range of participants in the small groups in these studies - this is important)
SO25A: 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?

77
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)
SO25A: Example
Sorry about the “clutter.” Neither J. Bailey and D. Johnson would
be happy with me, but some things need to be on one pg.

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 conting
between their performance and pay is the same under both pay systems)
78
SO25B: 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
79
(example on the next page)
SO25B: Example


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

80
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
Honeywell-Johnson et al., intro (NFE)
 Participants
were 4 college students
 Task was a computerized task with four sub-tasks
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



81
A = hourly pay with feedback
B = individual incentives with feedback
C = small group monetary incentives
Honeywell-Johnson et al., intro (NFE)
 Group

Participants were told that they were members of a 10person group and their data would be combined with the
point scores of the other nine members to determine the
amount of incentive




82
incentive condition
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
SO26: 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)

83
SO27
 27A: 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
 27B: Which
of the three pay systems did the majority
of performers (3 of 4) find to be the most stressful?

84
The small group monetary incentive system
SO27, NFE, but interesting…
 The
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)


preference data are interesting
85
Incentives – new directions


Incentive programs in human service settings
Still very rare

Vince Carbon, Carbone Clinic, Valley Cottage, NY




86
Center for autism
Began an incentive program for staff in 2005
Staff can earn up to $300 per month in incentive pay, $3600 a
year
I am going to present the details of this in U8
(Trumpet, next slide)
Incentives – new directions

Linda LeBlanc, Clinical Director, Trumpet Behavioral
Health

Centers for autism, primarily in the west



She and I interacted for over a year re the design of an incentive
system for staff; hired one of my former MA students as an
OBM person – eventually I expect this to happen
Carl Sundberg, Behavior Analysis Center for Autism


87
21 locations in AZ, CA, CO, Hawaii, MO, OH
Four centers for autism, Indiana
Contacted me and is pursuing implementation of an incentive
system for staff (I referred him to Vince)
Interesting: all are centers for autism; may have to do with
funding of services.
Incentives – new directions for research
 Monetary
value

Merchandise programs, travel, pre-paid debit cards – almost no
research whatsoever

Pre-paid cards easy substitute for $$ - are they really different?


vs. non-monetary incentives that have “cash”
Open-loop vs. closed-loop pre-paid cards
None examining effect of cash vs. non-cash on performance
using a “behavioral” incentive program

Trophy value of non-cash rewards (i.e., merchandise, travel)
 Spot
(give-and-go) awards or bonuses vs. long-term
program in which “if-then” is clarified in advance
 Incentives for wellness programs – this has become a very
big industry over the past few years
88
(A lot of executives in reward industry advocate short-term programs with noncash incentives;
Prevents it from becoming part of regular compensation, too difficult to change)
Incentives – interesting things to know
A
2007 World at Work survey of 300 private
companies

~80% of respondents have short-term incentive plans
52% of those have one plan, the rest have two or more in place
 Types of plans: bonus, individual, profit-sharing, team/unit/small group



Bonuses and individual incentives were awarded most frequently to
executives and managers
Only ~33% have long-term incentive plans
73% of those have only one long-term plan
 Types of plans include stock options (33%), performance plans (33%),
phantom stock, stock appreciations rights, and restricted stocks are
used to a lesser degree

89 (Phantom stock?? be careful, when we talk about incentives and incentive plans, we are often not talking about the same
people in business or people in the “incentive business” – consultants; I carefully restricted my work)
QUESTIONS OR COMMENTS?
For more on incentive pay and organization-wide systems:
Abernathy, W. B. (2011). Pay for profit: Designing an
organization-wide performance-based compensation
system. Atlanta, GA: Performance Management
Publications, Inc.
(Personal note: Bill is my hero!)
90
(ADI)
Theory behind profit-sharing


Profit-sharing was not originally developed to increase
employee performance; rather it is based on “macro-economic
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

91
Fewer people would lose their jobs and prevent the economy from a deeper
recession
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.
92