Budget‐Based Contracts, Budget Levels, and Group Performance

In this paper, we experimentally investigate the effects of budget‐based contracts and budget levels (performance targets) on group performance. We compare a group piece‐rate contract with two different specifications of a group budget‐based contract: (1) a group budget‐fixed contract that provides no remuneration for performance below the budget and a fixed bonus for performance meeting or exceeding the budget, and (2) a group budget‐linear contract that provides no remuneration for performance below the budget, a fixed bonus once the budget is attained, plus a piece‐rate for production in excess of the budget. We also assigned each group a budget level, set at 50 percent, 75 percent, or 100 percent of the group's performance capability. The results indicate that the group budget‐linear contract led to significantly higher group performance than both the group budget‐fixed contract and the group piece‐rate contract. Additionally, the 75 percent budget level led to significantly higher group performance t...

[1]  R. Mark Isaac,et al.  Divergent evidence on free riding: An experimental examination of possible explanations , 1984 .

[2]  Daniel Gopher,et al.  Effects of goal difficulty, self-set goals, and monetary rewards on dual task performance , 1990 .

[3]  A. Paul Hare,et al.  Small Groups: An Introduction , 1996 .

[4]  R. Mark Isaac,et al.  Heterogenous demand for public goods: Behavior in the voluntary contributions mechanism , 1995 .

[5]  Hideshi Itoh.  Incentives to Help in Multi-agent Situations , 1991 .

[6]  Richard I. Henderson,et al.  Compensation Management in a Knowledge-Based World , 1996 .

[7]  John C. Fellingham,et al.  Teams, repeated tasks, and implicit incentives , 1997 .

[8]  P. Christopher Earley,et al.  Delineating goal and efficacy effects : a test of three models , 1991 .

[9]  S. R. Searle,et al.  Population Marginal Means in the Linear Model: An Alternative to Least Squares Means , 1980 .

[10]  Kenneth A. Merchant,et al.  The achievability of budget targets in profit centers: a field study , 1989 .

[11]  M. Weitzman.  The 'Ratchet Principle' and Performance Incentives , 1980 .

[12]  Srinivasan Umapathy.  Current Budgeting Practices in U.S. Industry: The State of the Art , 1987 .

[13]  A. Bandura.  Self-Efficacy: The Exercise of Control , 1997, Journal of Cognitive Psychotherapy.

[14]  M. E. Tubbs,et al.  Goal setting: A meta-analytic examination of the empirical evidence. , 1986 .

[15]  Bengt Holmstrom,et al.  Moral Hazard in Teams , 1982 .

[16]  A. S. Blinder,et al.  Paying for productivity : a look at the evidence , 1990 .

[17]  P. Yetton,et al.  The effects of budget goals and task interdependence on the level of and variance in performance , 1999 .

[18]  Kristy L. Towry.  Control in a Teamwork Environment—The Impact of Social Ties on the Effectiveness of Mutual Monitoring Contracts , 2003 .

[19]  Kenneth A. Merchant,et al.  Modern Management Control Systems: Text and Cases , 1997 .

[20]  Canice Prendergast.  The Provision of Incentives in Firms , 1999 .

[21]  M. E. Shaw.  Group dynamics : the psychology of small group behavior , 1971 .

[22]  J. Ledyard.  Public Goods: A Survey of Experimental Research , 1994 .

[23]  Geoffrey B. Sprinkle,et al.  The effects of monetary incentives on effort and task performance: theories, evidence, and a framework for research , 2002 .

[24]  Anjan V. Thakor,et al.  Cooperation versus Competition in Agency , 1991 .

[25]  Henry L. Tosi.  A Theory of Goal Setting and Task Performance , 1991 .

[26]  Nandu J. Nagarajan,et al.  The Effect of Property Rights and Audit Information Quality on Team Incentives for Inventory Reduction , 1998 .

[27]  David Schmidtz,et al.  The assurance problem in a laboratory market , 1989 .

[28]  H. Demsetz,et al.  Production, Information Costs, and Economic Organization , 1975, IEEE Engineering Management Review.

[29]  T. Schelling,et al.  The Strategy of Conflict. , 1961 .

[30]  Ramzi Suleiman,et al.  Incremental Contribution in Step-Level Public Goods Games with Asymmetric Players , 1993 .

[31]  A. Rapoport,et al.  Provision of step‐level public goods with continuous contribution , 1992 .

[32]  Druckschrift ausfüllen.  Name , 2019, I/O.

[33]  Geoffrey B. Sprinkle,et al.  A Review of the Effects of Financial Incentives on Performance in Laboratory Tasks: Implications for Management Accounting , 2000 .

[34]  Geoffrey B. Sprinkle.  Perspectives on experimental research in managerial accounting , 2003 .

[35]  M. Hirst,et al.  Incentive Effects of Assigned Goals and Compensation Schemes on Budgetary Performance , 1992 .

[36]  Nicholas J. Mathys,et al.  Stretch targets: What makes them effective? , 1997 .

[37]  A. Schotter,et al.  Productivity Under Group Incentives: An Experimental Study , 1994 .

[38]  Kevin J. Murphy,et al.  Performance Standards in Incentive Contracts , 1999 .

[39]  Rewarding excellence. , 1991, Nursing standard (Royal College of Nursing (Great Britain) : 1987).

[40]  G. Marwell,et al.  Experiments on the Provision of Public Goods. II. Provision Points, Stakes, Experience, and the Free-Rider Problem , 1980, American Journal of Sociology.