Show Me the Money! Supply and Demand Misalignment for Tangible Rewards in Business

• In Event: Tangible Rewards and Incentive Framing

Abstract

Prior research has found conflicting results with respect to tangible rewards. Survey research has found that tangible rewards are used extensively in the real world, but experimental research has generally found little or no evidence that tangible rewards are more effective than cash rewards. We reconcile this apparent discrepancy by examining how tangible rewards affect effort-related decisions (performance targets and effort expenditure) by supervisors and employees. We conduct a lab experiment where we ask participants to take the role of either supervisor or employee. We manipulate the reward type (tangible or cash) and measure how much work supervisors demand and employees are willing to provide. The results of our experiment show that reward type affects supervisor’s target setting differently than it affects employee’s effort decisions. We find that the tangible rewards, relative to cash, significantly increase supervisors’ target setting but does not affect employee effort levels. Mediation analysis suggests that this discrepancy could be due to how supervisors and employees construe the rewards.

Authors

• Jeremiah Bentley, University of Massachusetts Amherst

• Kyle Stubbs, University of Massachusetts-Amherst

• Xiwei Yang, University of Massachusetts Amherst