Management Accounting Section Midyear Meeting

Do Performance-Contingent Incentives Help or Hinder Divergent Thinking?

• In Event: Control Systems (Experimental) II

Abstract

Divergent thinking generates multiple unconventional approaches to a problem or challenge. However, claims from prior experimental studies that incentives hinder divergent thinking often involve problems that have only one solution. In our first experiment, we replicate the negative effect of performance-based incentives in such settings, finding that participants solve fewer insight problems under performance-based pay than under fixed pay. But in a second experiment in which we retain the same key constraints of these problems but modify the assumptions to allow more than one unconventional solution, participants with performance-based pay identify significantly more divergent solutions than do their fixed-pay counterparts. In a third experiment, we also find evidence that incentives stimulate divergent thinking when participants design rather than solve insight problems. Overall, our findings suggest that the negative effect of performance-contingent incentives in some settings is more a reflection of the limitations imposed by these settings than the failure of incentives to stimulate divergent thinking.

Author

• Michael Glenn Williamson, University of Illinois at Urbana-Champaign