The Effect of Relative Performance Information Under Different Incentive Schemes on Performance in a Production Task

Abstract

Using social comparison theory as the theoretical framework, this study investigates whether relative performance information (RPI) motivates workers in a real-effort task and whether the effects vary under piece-rate, quota-based, and budget-based incentive schemes. An experiment was conducted using a 2 (RPI: yes or no) by 3 (incentive scheme: piece-rate contract, quota-based contract, or budget-based contract) between-subjects factorial design using 135 student participants assuming the role of production workers. Results revealed a strong and consistently positive effect on task performance of providing relative performance information across the three incentive schemes. Regarding the motivational value of the incentive scheme, the results revealed that participants operating under the quota-based contract significantly outperformed those operating under the budget-based and the piece-rate contract. The interaction between RPI and incentive scheme was insignificant. Results also revealed that the performance enhancing value of RPI was most pronounced for participants in the bottom third of the performance distribution. This study provides empirical evidence on the value of configuring a firm’s management accounting system to provide workers with frequent relative performance information.

JEL Classification: M46