Incentive Systems and Individual Performance: The Mediating Effect of Human Behavior and the Moderating Effect of Model of Man
Abstract
The objective of this research is to better understand the relationship between incentives and individual performance. Most of the accounting research on the topic applies economics-based theories, especially agency theory. Moreover, prior study obtained conflicting results because their empirical frameworks omit relevant intervening variables. In this paper, I discuss individual behavior-related mediating variables in the incentive-performance relationship. In particular, my focus is on the effect of incentive systems characteristics (measurement diversity and subjectivity) on behavioral variables (role conflict, role ambiguity, and feedback-seeking behavior) in order to explain the variance in individual performance. I referred to psychology-rooted and cybernetics-rooted theories to generate my hypotheses that predict a negative relationship between measurement diversity and individual performance though role conflict and ambiguity and a positive relationship between subjectivity and individual performance through feedback-seeking behavior. Further, I investigate the moderating effect of personal attributes in the incentive-performance relationship. Based on value commitment, I categorized individuals into two different types of models of man (i.e, the agent and the steward) derived from two different management theories. My hypotheses predict that the behavioral responses to incentives are different for the two types of individuals.
The research site used is a national subsidiary of a large Finnish multinational company. The short-term incentive plan I studied involve about 460 employees. I used proprietary data to measure incentive characteristics and conducted an internal survey to capture behavioral variables. I measured individual performance based on perceptual and objectives measures.
My analysis shows that measurement diversity leads to a lower individual performance through the role conflict experienced by the subordinate. I do not find support for the mediating effect of feedback-seeking behavior within the relationship between subjectivity and individual performance. The moderating effect of model of man results to be particularly evident in presence of subjectivity: only stewards-oriented individuals seek feedback in response to subjective valuations.
My findings show the explanatory power of behavioral variables in understanding the incentive-performance relationship and reveal the benefits of a multi-disciplinary approach to performance measurement and incentives research.
There will be lunch at 12:15 hours at the social corner on the 9th floor.
Contact information:
Paolo Perego
Anna Nöteberg
