Killing Conscience: The Unintended Behavioral Consequences of 'Pay For Performance'
It is often argued that incentive programs providing large material rewards are the best and possibly the only way to motivate corporate executives and other employees to serve their firms' interest. Science dis agrees.
Extensive behavioral evidence demonstrates that with the right combinations of social cues and discretionary ex post rewards, many agents will work harder and more honestly than formal incentive contracts can induce them to. The second point is that for many complex tasks that principals might want agents to perform in the business world and elsewhere, employing ex ante incentives can be dangerous because this strategy for a variety of reasons suppresses conscience and promotes selfishness. The natural implication of the two points is that instead of relying on ex ante incentives, corporations and other employers often might do better to rely on ex post, trust-based compensation arrangements that recognize both the principal’s and the agent’s capacity to reciprocate prosocial behavior.
Read the full paper by Lynne A Stout