The Role of Communication of Performance Schemes: Evidence from a Field Experiment

AbstractIn corporate practice, incentive schemes are often complicated even for simple tasks. Hence, the way they are communicated might matter. In a natural field experiment, we study a minimally invasive change in the communication of a well-established incentive scheme-a reminder regarding the piece rate at the beginning of the shift. The experiment was conducted in a large firm where experienced managers work in a team production setting and where incentives for both quantity and quality of output are provided. While the treatment conveyed no additional material information and left the incentive system unchanged, it had significant positive effects on quantity and on managers' compensation. These effects are economically sizable and robust to alternative empirical specifications. We consider various potential mechanisms, but our preferred explanation is that the treatment raised the salience of incentives.This paper was accepted by John List, behavioral economics.