Measuring and Motivating Quantity, Creativity, or Both

Abstract

We examine how worker productivity differs when performance-based compensation is based on measures of quantity, creativity, or the product of both measures. In an experimental task in which participants design rebus puzzles, we find that quantity-based compensation increases the number of puzzles produced, and that creativity-based compensation improves average creativity ratings, as evaluated by an independent panel of raters. However, a weighted compensation scheme that rewards the product of quantity and average creativity ratings results in weighted productivity scores that are significantly lower than those generated by participants with quantity incentives alone. Follow-up analysis indicates that relative to participants compensated solely for quantity, participants in the weighted condition produce approximately the same number of high-creativity puzzles, but produce significantly fewer puzzles of mediocre creativity. This finding is consistent with the premise that participants rewarded for creativity-weighted output simplify their objective by restricting their production to high-creativity ideas, but are unable to translate this focus into a greater volume of high-creativity output. Implications address a possible explanation for why firms are reluctant to incorporate creativity measures within multi dimensional performance measurement systems, notwithstanding published suggestions to do so.

Keywords: managerial accounting, incentives, creativity

JEL Classification: M40, M46, J33