Management Accounting Section Midyear Meeting

The Effect of Reward Frequency and Reward Conditionality on Drivers of Employee Performance

• In Event: Reporting Frequency

Abstract

Recent incentive compensation trends suggest that many firms are (a) increasing the frequency with which they reward their employees and (b) providing gift-like unconditional rewards to employees irrespective of performance. This study investigates the effects of reward frequency and reward conditionality on two important drivers of employee performance: the propensity to explore for task efficiencies and the provision of productive effort. Using a reward points system, we predict and find that the effect of reward frequency on employee behavior depends upon the conditionality of their rewards. Specifically, we find that while increasing reward frequency has a negative effect on the number of efficiencies employees find when rewards are conditional, it has a positive effect on efficiency finding when rewards are unconditional. We also find that employees receiving conditional rewards exhibit higher output per efficiency than those receiving unconditional rewards, suggesting higher productive effort intensity for conditional rewards. Further, increasing reward frequency when rewards are conditional leads to higher output per efficiency, but there is no significant difference in output per efficiency from increasing reward frequency when rewards are unconditional. Results of our study contribute to both theory and practice by providing a deeper understanding of how incentive compensation design influences important drivers of employee performance.

Authors

• Andrew H. Newman, University of South Carolina

• Ivo D. Tafkov, Georgia State University

• Nathan Waddoups, University of Denver

• Grazia Xiong, Utah State University