(Non-)monetary incentives and the meaning of work

Michael Kosfeld, Susanne Neckermann, Xiaolan Yang

08 May 2016

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Several findings in the recent economics and psychology literature document that workers and employees don’t care only about earning (more) money in their job, but that other, non-monetary motives play a similarly important role at the workplace. These findings – which to non-economists may not come as a big surprise – raise questions about how firms and organisations can actually use these non-monetary motives to incentivise employees, thus saving on financial resources. The idea seems tempting, at least from a firm’s perspective. For example, findings from a field experiment with fundraising agents show that merely emphasising the importance of an agents’ task – via documenting the social and economic impact funds have on recipients’ welfare – can increase agents’ performance by more than 100% (Grant 2008). Similarly, relative performance feedback, for example in the form of openly published rankings of individual performance (Blanes i Vidal and Nossol 2008), or public recognition of top performers via employee-of-the-month-like awards (Markham et al. 2002, Kosfeld and Neckermann 2011) have been shown to increase performance significantly. Wouldn’t it therefore be a good idea, instead of paying expensive bonuses and piece rates, to make use of these ‘cheaper’ non-monetary motivators more frequently and perhaps even combine some of the instruments to increase work effort?

Answering this question requires information about how stable the effects of particular non-monetary incentives are across work contexts, and how different motivators interact with each other. Unfortunately, while there is by now a large literature studying the interaction of intrinsic and extrinsic (typically monetary) incentives (e.g. Deci et al. 1999, Gneezy et al. 2011, Kamenica 2012), we still know relatively little about the stability of incentive effects across different work contexts, or the joint effects of different non-monetary motivators in combination, let alone the underlying economic or psychological mechanisms that are responsible for any such effects.

Meaning of work

In a new study, we are interested in finding out whether the notion of ‘meaningful work’ can be used to address the above questions (Kosfeld et al. 2016). Prior studies have shown that a worker’s perceived meaning of a job or task can entail positive effects on work performance (Ariely et al. 2008, Grant 2008, Chandler and Kapelner 2013). While there is probably no universally accepted definition of ‘meaningful work’, the latter is generally associated with jobs that are positively recognised by others and/or have some point or purpose (cf. Ariely et al. 2008).

We manipulated the meaning of work in a field experiment in combination with different forms of either non-monetary or monetary incentives. In the high-meaning condition, workers were told that their work, which consisted of entering data into an electronic database, was of great importance for a research project. In the low-meaning condition, workers were told that their work was merely a sort of quality check that most likely would never be used. Additionally and independently of this, we either paid workers a fixed wage (baseline condition), a fixed wage plus piece rate for each data entry (monetary incentive condition) or a fixed wage plus a symbolic award (recognition condition). The latter came in the form of a smiley button that was handed over in public to the best performing worker at the end of a work session. A total of 413 students were hired for our study, which took place in collaboration with a large social survey research centre in Hangzhou, China.

Our results show that first, higher perceived meaning of work leads to higher performance. While in the baseline condition with low meaning, average performance lies at 1,598 data entries per worker (SD 340), average performance is about 15% higher in the high-meaning condition (1,845 data entries, SD 344). This finding of a positive direct effect of meaning is important as it replicates the results of previous studies. Thus, knowing that you matter really matters, which suggests that the provision of meaning can be a low-cost instrument to stimulate work effort.

Monetary and recognition incentives interacted with meaning of work

Our second and more important result concerns the interaction of monetary and non-monetary incentives with meaning. Figures 1 and 2 show what we find in our experiment.

Figure 1. The interaction effect of meaning and monetary incentives

Figure 2. The interaction effect of meaning and recognition

While monetary incentives in the form of piece rates produce similarly positive performance effects (of about 5-8%, Figure 1) independent of whether meaning of work is high or low, the effect of non-monetary incentives in the form of public recognition critically depends on meaning. If the meaning of the job is low, recognition has a significant positive effect on performance, of about 18% (see Figure 2). In contrast, if meaning is high, the effect of recognition on performance is basically zero. Thus, monetary incentives entail stable, positive effects across the two contexts, albeit effects are considerably smaller than each of the individual effects of meaning or recognition alone. However, the effects of meaning and recognition are substitutive; each increases work performance alone but adds nothing once the other is present.

Possible explanation and conclusion

Our experiment documents a clear, negative interaction effect between meaning of work and worker recognition. One possible explanation for this finding is image-motivation theory (Bénabou and Tirole 2006). To see this, suppose that both recognition and work meaning provide positive (social) image value. That is, if a worker is publicly recognised by the organisation for his performance, his or her social image increases. Similarly for meaning – if a worker works on a meaningful task, this raises his social image. Bénabou and Tirole (2006) show in their model that if workers care about their image, the marginal benefit of image rewards is positive but declines as image rewards increase. Thus, additional image rewards have substitutive – rather than additive – effects, which is exactly what we find. Clearly, we cannot rule out the existence of alternative explanations and we do not want to suggest that all positive effects of meaning (or recognition) rely on image seeking. But it’s important to see that there are cases in which meaning and recognition can be perfect substitutes. On a more general level, our results suggest that non-monetary incentives can be quite sensitive to changes in the work context and environment – and in particular, more sensitive compared to monetary incentives – thus limiting their use as a cost-effective instrument to motivate effort.

References

Ariely, D, A Bracha and S Meier (2009) “Doing good or doing well? Image motivation and monetary incentives in behaving prosocially,” American Economic Review, 99(1): 544–555.

Ariely, D, E Kamenica and D Prelec (2008) “Man’s search for meaning: The case of legos,” Journal of Economic Behavior & Organization, 67: 671–677.

Bénabou, R and J Tirole (2006) “Incentives and prosocial behavior,” American Economic Review, 96(5): 1652–1678.

Blanes i Vidal, J and M Nossol (2011) “Tournaments without prizes: Evidence from personnel records,” Management Science, 57(10): 1721– 1736.

Chandler, D and A Kapelner (2013) “Breaking monotony with meaning: Motivation in crowdsourcing markets,” Journal of Economic Behavior & Organization, 90: 123–133.

Deci, E L, R Koestner, and R M Ryan (1999) “A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation,” Psychological Bulletin, 125(6): 692–700.

Gneezy, U, S Meier and P Rey-Biel (2011) “When and why incentives (don’t) work to modify behavior,” Journal of Economic Perspectives, 25(4): 191–2010.

Grant, A (2008) “The significance of task significance: Job performance effects, relational mechanisms, and boundary conditions,” Journal of Applied Psychology, 93(1): 108–124.

Kamenica, E (2012) “Behavioral economics and psychology of incentives,” Annual Review of Economics, 4(1): 427–452.

Kosfeld, M and S Neckermann (2011) “Getting more work for nothing? Symbolic awards and worker performance,” American Economic Journal: Microeconomics, 3(3): 86–99.

Kosfeld, M, S Neckermann and X Yang (2016) “The effects of financial and recognition incentives across work contexts: The role of meaning,” CEPR Discussion Paper 11221.

Markham, S E, K D Scott and G H McKee (2002) “Recognizing good attendance: A longitudinal, quasi-experimental field study,” Personnel Psychology 55(3): 639–60.

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Topics:  Industrial organisation Labour markets Productivity and Innovation

Tags:  labour, work, meaning, field experiment, performance, incentives, meaningful work, motivation, recognition

Professor of Business Administration and Chair of Organisation and Management, Goethe University Frankfurt; Fellow of CEPR

Research Associate at the Institute for Empirical Research in Economics, Universität Zürich

Associate Professor, College of Economics, Zhejiang University

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