Reframing Bonuses at the Factory [Paper]

[Syndicated from my personal blog, here]

A fascinating new paper studies the effect of framing bonuses on productivity:

During our experiment, which lasted almost six months in total, subjects engaged in their regular tasks, and had standard work schedules. As per company policy, the bonus incentives were paid in addition to the base income, and employees were notified of the bonuses via personal letters. The main insights gained in the experiment come from a comparison of productivity measures across a baseline and two treatments: in the positively framed bonus ("reward") treatment employees are notified that if the week’s average per-hour production reaches a certain threshold, a bonus is paid at the end of the pay period. In the negatively framed bonus ("punishment") treatment, employees are provisionally given the bonus before the work week begins, but are notified that if the average per-hour production does not reach a certain threshold, it is retracted at the end of the pay period. In this way, the bonus schemes are isomorphic, except for the frame. Nevertheless, prospect theory conjectures that since losses loom larger than gains, the punishment treatment should outperform the reward variant. Alternatively, if workers are more invigorated by positive incentive schemes, the reward treatment should lead to a higher level of productivity.

You can read more about "The Behavioralist Visits the Factory", here:
http://economistsview.typepad.com/economistsview/2010/01/the-behavioralist-visits-the-factory.html