The Impact of Incentive Types on Organisational Performance in Anglo Cultures: A Reply to Drake, Haka and Ravenscroft (1999)

Roman Lanis
University of Technology, Sydney
Australia

Paul Brown
University of Technology, Sydney
Australia

Gianna Bairstow
University of Technology, Sydney
Australia

Abstract:
Experimental research suffers from biases introduced by experiment design choices, such as choice of incentive and reward structures. We propose that as different reward structures lead to different incentives, framing rewards in a broader typology when researchers make decision about which reward structures to use in an experiment will minimise the potential for a false dichotomy bias. To highlight this problem we replicate Drake et al (1999) incentive structure experiment using a simpler, more theory driven design. Drake et al (1999) propose that organisational performance maybe be better if group compensation is applied in preference to individual compensation within the organisational reward structure in an information rich environment. In particular, Drake et al (1999) apply an experimental research design to test that proposition using U.S. MBA students. Their results suggest that, ceteris paribus, given a group in preference to tournament incentive scheme, innovation, efficiency and profitability may improve. We argue that this conclusion is inconsistent with the societal values of the U.S., and culture and agency theories in general. A possible explanation for the result is the use of a tournament incentive scheme as the basis for individual compensation. As such, we replicate the Drake et al. (1999) experiment using Australian university students and a piece-rate incentive scheme as the basis for individual compensation. Our results, in contrast to Drake et al. (1999) indicate that given a piece-rate in preference to group incentive scheme, innovation, efficiency and profitability may improve. This experiment highlights the false choice bias that reduces that generalizability of experimental research in general and highlights the value of developing more theoretically sound propositions couched in a broader reward typology.