Measurement Diversity and Subjectivity in Incentive Contracts: A Field Study of Employee Perceptions, Feedback-Seeking Behavior, and Extrinsic Satisfaction

• In Event: Attributes of Incentives

Abstract

Diversity and subjectivity are two common measurement attributes of performance targets used in incentive contracts. Prior research studies them separately and provides mixed results on their effects on organizational performance. Since firms set performance targets primarily to influence employee motivation, we examine how employees respond to measurement diversity and subjectivity of performance targets. We used proprietary data from two firms to measure the diversity and subjectivity of performance targets included in short-term incentive contacts. We then conducted a survey within the firms to capture employee goal perceptions and self-regulatory processes to cope with them. Our findings show that employees whose incentive contracts disperse weights on multiple targets (i.e., higher diversity) report higher conflict, and employees whose incentive contracts place more weight on subjective targets (i.e., higher subjectivity) report higher ambiguity. Although both perceptions are associated with lower extrinsic satisfaction, we find that employees who perceive higher conflict tend to engage more in feedback-seeking behavior, mitigating the negative effect on their extrinsic satisfaction. Conversely, we find that employees who perceive higher ambiguity tend to engage less in feedback-seeking behavior. Our findings highlight the importance of behavioral responses to the measurement attributes of performance targets and contribute to explaining their motivational implications.

Author

• Lorenzo Patelli, University of Denver