Wednesday, November 18, 2015

Incentive Redesign and Collaboration in Organizations: Evidence from a Natural Experiment

LEE Sunkee, PURANAM Phanish
Read the working paper
INSEAD Working Paper 2015/91/STR

Separating the individual from the social effects of incentives has been challenging, because of the possibility of synergies in team production. We observe a unique natural experiment in a South Korean e-commerce company, in which a switch from pay-for-performance to fixed (but different) salaries took place in a staggered and effectively random manner across employees. In this case, social and individual effects perspectives make opposing predictions, enabling a critical test. We find evidence consistent with social effects of incentives, particularly as predicted by goal framing theory. The results have implications for the design of incentives to foster collaboration, organizational learning, and organizational performance.