Communicated Values as Informal Controls: Promoting Quality While Undermining Productivity?†

Abstract

We find that the effectiveness of piece-rate compensation relative to fixed pay in a laboratory letter-search task hinges on the presence or absence of a nonbinding statement to participants that the experimenter values correct responses. In the absence of the value statement, participants with piece-rate rewards for correct responses generate more correct andincorrectresponses than do their counterparts with fixed pay, correcting errors as they go along to maximize compensation. Essentially, piece-rate compensation acts as anoutputcontrol, incentivizing participants to maximize correct responses through a “produce-and-improve” strategy. The value statement suppresses this strategy because participants appear to perceive it as aninputconstraint, prompting greater initial care at the expense of lower overall productivity. As a result, the value statement eliminates the gains in correct responses that piece-rate incentivized participants otherwise realize. Thus, in settings in which individuals can gain efficiency by working expeditiously and improving quality when necessary, our results suggest the possibility that organizations could be better off just letting incentive schemes operate, rather than emphasizing quality in ways that could overly constrain productivity.