Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes

摘要

Economists tend to believe that incentive contracts are beneficial when most aspects of performance are measurable, as they make employees work harder. Indeed, there are some recent empirical studies on single firms showing that incentive contracts have raised productivity significantly. However, descriptive evidence on the limited overall frequency of use of pay-for-performance schemes may call for more caution. There seem to be very different views in individual firms on whether contracts based on individual performance are beneficial or not. Whereas some see incentive contracts as an important component of their human resource management practices, others take a much more skeptical view and even consider extrinsic incentives harmful.