BONUSES
Academic studies find upfront incentives more effective than traditional bonuses | Financial Times
New research evidence suggests that handing out incentives in advance is much more effective than “traditional” bonuses paid at the end of the year linked to achievement, Adam Grant writes in today’s Financial Times.
Grant, who is a professor at Wharton business school and the author of “Give and Take”, delved into a batch of field studies by behavioural economists that look at what the data says about the use of advance rewards. In one study for the National Bureau of Economic Research*, economists led by Harvard University’s Roland Fryer demonstrated that exploiting the power of “loss aversion” – teachers in schools in Chicago were paid incentives in advance and asked to give back the money if their students do not improve sufficiently – increased math test scores.
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Grant concludes:
“Next time you plan to pay employees after they have achieved a target level of performance, it is worth asking if it would be more effective to give the bonus upfront.”
* Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A field experiment
By Roland G Fryer, Jr, Steven D Levitt, John List and Sally Sadoff
Working Paper 18237, National Bureau Of Economic Research, July 2012.
To find out more, go to www.nber.org/papers/w18237.
An upfront bonus pays over the long term | http://t.co/VEcJV31g1y via @FT
— e-reward.co.uk (@ereward) August 6, 2013