Attracting Creativity: The Initial and Aggregate Effects of Contract Selection on Creativity-Weighted Productivity

49 Pages Posted: 28 Feb 2008 Last revised: 30 Jul 2008

See all articles by Steven J. Kachelmeier

Steven J. Kachelmeier

University of Texas at Austin

Michael G. Williamson

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: February 8, 2008

Abstract

Using an experiment in which participants design rebus puzzles, we extend recent research on creativity-weighted productivity (i.e., quantity weighted by creativity ratings) by allowing participants to choose between a contract that rewards creativity-weighted productivity or one that rewards quantity only. As such, we examine both of the factors that agency theory suggests can arise from contingent compensation: (1) influencing effort (to address the moral-hazard problem of hidden action) and (2) attracting ability (to address the adverse-selection problem of hidden information). We find that participants who choose a creativity-weighted pay scheme have greater self-perceived creativity than those who choose a quantity-only scheme, and that this perceived creativity advantage manifests itself in significantly higher creativity-weighted productivity scores in initial production. For production as a whole, however, we observe a different pattern. Namely, whether compensation contracts are randomly assigned or self-selected, participants operating under a quantity-only scheme eventually produce just as many high-creativity puzzles as their creativity-weighted counterparts, and also produce significantly more puzzles overall. Thus, the implications of contract selection on creativity-weighted productivity hinge on the importance of the head start attained by participants who self-select a creativity-weighted contract.

Keywords: Creativity, incentives, contingent compensation, multi-dimensional performance measurement, adverse selection

JEL Classification: C91, J33, D82, M40, M41, M46

Suggested Citation

Kachelmeier, Steven J. and Williamson, Michael G., Attracting Creativity: The Initial and Aggregate Effects of Contract Selection on Creativity-Weighted Productivity (February 8, 2008). AAA 2009 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1099315 or http://dx.doi.org/10.2139/ssrn.1099315

Steven J. Kachelmeier

University of Texas at Austin ( email )

Department of Accounting
2110 Speedway, Mail Stop B6400
Austin, TX 78712
United States
512-471-3517 (Phone)
512-471-3904 (Fax)

Michael G. Williamson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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