Control systems and pecuniary incentives erode morale by signaling to the agent that the principal is not worth impressing.
Here is an earlier draft of the paper, "Pride and Prejudice: The Human Side of Incentive Theory," by Tore Ellingsen and Magnus Johannesson; a better version is in the June 2008 American Economic Review.
By the way, in my mental pantheon, "Very excellent sentences" are stacked somewhere above "Very good sentences."
Tyler,
The sentence you submit as excellent is:
“Control systems and pecuniary incentives erode morale by signaling to the agent that the principal is not worth impressing.”
Yet the link to the abstract indicates that the sentence there is less
definitive, being qualified by the word “may”:
“Control systems and pecuniary incentives may erode morale by signaling to the agent that the principal is not worth impressing.”
I haven’t yet read the paper, but I wonder is the “may” is there because
game theoretic analysis in the paper generates multiple equilibria. If the
goal is to generate potentially refutable hypotheses, the less definitive
statement (containing “may”) in the abstract is less excellent that the
definitive statement (sans “may”) that you quote (misquote?).
If the principal really isn’t worth impressing, might there be situations in which the signal is worth sending?
I had to go googling to find a version of the paper accessible to the non-institutionalized and found one here: http://www.iew.uzh.ch/study/courses/downloads/Ellingsen_Johannesson.pdf.
Reading the paper…
Kevin,
In banking control systems limit behavior (an example would be limiting loans undwritten to 10 per week or $10 million per loan without approval from a higher ranking employee).
Essentially, the claim is that limiting employees while providing monetary incentives reduce morale because the company’s owners have signaled to their employees that they do not wish to be impressed (rather they value only having their expectations met).
I’m not sure it’s that different from high achievers serially moving to smaller “more entreprenurial firms” with fewer limits on their ability to excel.
In a pretty far out example, controls limit bad actors, but also Jack Bauers.
I think that the excellent sentence refers to the fact that incentives are more than a reward for work
completed. Incentives are also signals regarding the expectations of the principal incentive provider to
the agent and as a result a signal of their attributes. Control systems imply a certain lack of trust as
do piece rate incentives. Control systems may also imply that an employer has faced risks in the past that
require controls and piece incentives which then implies that the employer may not have a great staff of
workers and may be risky.
High fixed wages may indicate that the employer attracts highly qualified employees and one may be lucky to
work for such a company.
No wages may imply that the work has other qualities that one may be intrinsically attracted to in an alturistic
way. Think of a voluntary appointment to a prestigous responsibility.
The sentence must be in context of the situation for both the principal and agent as well as the nature of
the work and maybe what agreements were struck prior to the incentive contract being written.
you can get more from this
It is enlightening!
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