Paying with Self-Chosen Goals: Incentives and Gender Differences

Abstract

To boost employees' performance, firms often offer monetary bonuses when production goals are reached. However, the evidence suggests that the particular level of a goal is critical to the effectiveness of this practice. Goals must be challenging yet achievable. Computing optimal goals when employees have private information about their own abilities is often not feasible for the firm. To solve this problem, we propose a compensation scheme in which workers set their own production goals. We provide a simple model of self-chosen goals and test its predictions in the laboratory. The evidence we find in the laboratory confirms our model's predictions for men, but not for women. Men exert greater effort under the self-chosen goal contract system than under a piece rate contract. In contrast, women perform worse under the self-chosen goal contract. Further analysis suggests that this is because women fail to set goals that are challenging enough, because they are less likely to update their goals to take into account their improving performance as they repeat the task. JEL: C91, C92, J16, J24.

Goal setting in the principal–agent model: Weak incentives for strong performance

“…Even though a growing number of works in Economics have documented the effectiveness of various forms of non-monetary incentives such as goals (Wu et al 2008;Goerg and Kube, 2012;Gómez-Miñambres, 2012;Corgnet et al 2015a;Dalton et al 2015;van Lent and Souverijny, 2015;Allen et al 2016), status incentives (Charness et al 2014), symbolic rewards (Kosfeld and Neckermann, 2011), delegation (Fehr et al 2013), autonomy (Falk and Kosfeld, 2006) or trust (Dickinson and Villeval, 2008), little is known about the interaction between monetary and non-2 monetary incentives. It is essential, however, to examine monetary and non-monetary incentives jointly to provide guidance for practitioners who typically use both types of incentives.…”

Goal Setting and Raising the Bar: A Field Experiment

“…Next consider the student setting a goal that challenges her to exert more e¤ort, g > . The student optimally meets such a goal by exerting e = g. 10 Given this, the student sets her goal to maximize her utility resulting in the optimal challenging goal g C = 2 . The student obtains utility U C = 2 from setting herself the challenging goal, exceeding the utility U N C = 3 2 derived from setting the non-challenging goal.…”

“…In some papers goals are combined with monetary incentives (see e.g. Goerg and Kube 2012, Dalton et al 2015, and Corgnet et al 2015) and in other papers goals are set without monetary incentives (see e.g.…”

Goal Setting, Information, and Goal Revision: A Field Experiment

“…In addition to the economic theory literature, there is an increasing number of empirical studies investigating the effects of goal setting on performance in the laboratory and in the field. See for instance Brookins et al (2017), Corgnet et al (2015Corgnet et al ( , 2018, Dalton et al (2016), Koch and Nafziger (2017), Markle et al (2018), and Uetake and Yang (2018), and for experimental studies about goal setting with university students, see e.g., Clark et al (2018), Dobronyi et al (2017), andVan Lent andSouverijn (2017). In Van Lent and Souverijn (2017) goals are set during one-on-one interviews between students and their randomly assigned mentor.…”