5.1 Feedback effects
The effects of feedback prove to be positive in that subjects in both the objective and subjective feedback treatments increase their performance over periods. In addition, in line with the predictions by hypothesis 1 objective feedback has a greater impact on performance than subjective feedback.
The effect can be tied to the subjects’ perception of accuracy, which is a crucial element for the power of the incentive. As Lazear & Gibbs (2009) argues, objective feedback can work as a powerful incentive when performance is easily quantified. Thus, the positive effect of objective feedback compared to subjective feedback could be due to the quantitative nature of the
experimental task. Because the colored triangles were visibly counted in the objective feedback treatment, subjects were provided with a certain indication of how performance was measured.
Consequently they were indirectly provided with guidelines on how to improve performance. This may have caused subjects to experience objective feedback as more accurate than subjective feedback. In the subjective feedback treatment, the colored triangles were not visibly counted further causing subjects to be confused about how they were measured. This confusion may have elicited subjects to explore other solutions (e.g. improving quality in terms of more accurate coloring or investing more time on calculations) shifting their focus away from the initial task.
Deci & Ryan (1985) stated that the motivational aspect of feedback is that workers obtain a sense of empowerment when they are provided with feedback stating their competence. This means that negative feedback may undermine the sense of achievement and consequently impair workers’
motivation to perform. The presented intuition is supported by Azmat & Irriberi’s (2012) study that found that positive (negative) feedback affected workers’ happiness positively (negatively). In addition, the lack of indication as to how performance was measured in the subjective feedback treatment may cause negative subjective feedback to strike even harder. The intuition could be further elaborated by considering the individual’s desire to reciprocate behavior. Fehr and Falk (2001) argued that this was an important psychological aspect of motivation and that such motives alone could cause changes in performance. If subjects perceived subjective feedback as abstract and confusing in addition to experiencing uncertainty about how performance was measured, subjects
may have felt they were treated unfairly. In the case of reciprocate behavior, an individual would respond positively to positive actions by the principal or manager and vice versa. If subjects
experienced the experimenters’ evaluations as unfair, this may have resulted in negative behavior by not exerting the necessary effort to increase performance.
5.2 Incentive scheme effects
The analysis in testing hypothesis 2 fails to provide any significant effects of performance pay having a greater impact on performance compared to fixed pay. However, the data displayed a trend in which subjects assigned performance pay perform better than subjects assigned fixed pay. This is in line with the majority of previous research on monetary incentives and suggests that material rewards do in fact play a part in enhancing motivation and increasing performance.
Although there exists a certain trend of performance pay being more effective in enhancing performance than fixed pay, the trend is not as clear as we may have anticipated. This could be explained by subjects’ being intrinsically motivated to achieve high grades, which is supported by the pilot subjects’ statement (see 3.4) that their main focus was to improve their grade, regardless of incentive scheme. Moreover, this is seemingly true for several of the subjects as they increased performance despite the fact that the fixed pay condition meant that additional effort did not accrue additional benefit.
The intrinsic motivation to improve performance could also be discussed in the context of individuals’ competitive preferences. Individuals are assumed to have inherent competitive
preferences, which causes them to get extra utility from performing better than others and disutility from performing worse (Azmat & Irriberri, 2012). Alvero et al. (2001) showed that the possibility of comparing performance to a previous period increased the consistency in the effects of feedback.
Thus, we assume that the competitive preferences extend to wanting to compete with themselves, especially when a previous performance for comparison is available. In addition, some subjects attended the experiments with friends and although they did not communicate during the
experiment, competitiveness could arise by subjects knowing they would exchange results with their
According to previous research, intrinsic motivation should be discounted when sufficient extrinsic factors are present. Our results thus lead to a discussion of whether the compensation level was sufficient. Recall that the limitations section presented a concern that our grading system may have been too strict. Consequently this would mean that subjects under performance pay had to work harder for their money than subjects under fixed pay. The incentive schemes and grading system were initially designed so that they were predicted to yield approximately the same payoff for both the performance pay and fixed pay treatments. I.e., we expected the average payoff for subjects in the performance pay treatment to be approximately NOK 100. However, the average payoff was NOK 86 for the performance pay treatment, while it was NOK 100 for the fixed pay treatment.
5.3 Interaction effect
Contrary to what was predicted by hypothesis 3, the regression analysis yielded no significant interaction effect between objective feedback and performance pay. However, there exists a certain trend; objective feedback combined with performance pay yields the highest average performance, while subjective feedback combined with fixed pay yields the lowest.
Although the interaction effect is insignificant, it is interesting to explore the trends yielded by the analysis. The results from the regression model with controls (table 4) show that performance pay has a negative impact on performance in period 1 and 3, while the effect of objective feedback is positive throughout the experiment. The negative effect of performance pay can be tied to what psychologists call “the hidden cost of reward”, which suggests that performance pay undermines confidence in own abilities and thus crowds out intrinsic motivation. In addition, Deci (1971) found that intrinsic motivation to perform a task was impaired when there was no longer a sufficient instrumental value to it. Thus, if the compensation level was to low to correspond to the grading system, the low instrumental value of the task may have had a detrimental effect on intrinsic motivation and impaired the potential effect of performance pay. However, in line with Kvaløy et al.’s (2013) findings, we find that the effect switches from negative to positive when accompanied by objective feedback (interaction effect). The interaction effect is positive and also greater than objective feedback alone in period 1 and 3, which indicates that objective feedback and performance
pay complement each other. This trend is in line with the predictions from hypothesis 3, but the statistically insignificant result inhibits us from rejecting the null hypothesis and supporting Amabile’s (1993) suggestion of motivational synergies.
5.4 Other testing
When variables for low grade were added, the regression analysis revealed that subjects who obtained low grades in period 1 and 2 also performed worse in period 3 compared to subjects who obtained high grades. This implies that obtaining a low grade in period 1 or 2 negatively impacts performance.
Based on the suggested psychological effect of subjective feedback, the main purpose of expanding the regression model was to see whether such an effect could be precluded by so-called “low-graders” driving the negative effects. However, the positive interaction effect between objective feedback and low grade (Obj x Low Grade P1 and Obj x Low Grade P2) implies that subjective feedback compared to objective feedback has a negative effect on performance regardless of whether the subject is a “high-grader” or a “low-grader”. But because the interaction effect is not statistically significant we cannot preclude the possibility that low-graders are the reason why subjective feedback has a negative effect compared to objective feedback.
The analysis reveals a positive and significant interaction effect between performance pay and low grade in period 1. The interaction effect shows that being assigned performance pay compared to fixed pay positively impacts subjects’ performance in period 3 if he obtained a low grade in period 1 rather than a high grade. This supports previous findings in research on monetary incentives in that performance pay works as a stronger incentive to enhance performance than fixed pay. Moreover, it is interesting to see that the interaction effect between performance pay and low grade in period 2 is negative. This may imply that the incentive effect of performance pay is crowded out by the
psychological effect of receiving low grades. However, this interaction effect is not significant.