The Impact of feedback and incentive schemes on performance

Abstract

In this thesis we analyze how different feedback (objective and subjective), incentive schemes (fixed pay and performance pay), and the interaction between them impact performance. To answer our research question we conduct a lab experiment on students from the University of Stavanger. The experiment consists of subjects performing a combined coloring- and calculation task over three periods and receiving either objective or subjective feedback after each period. To conduct our analysis we employ a 2 (feedback; objective or subjective) x 2 (incentive scheme; fixed pay or performance pay) between subjects design.

The analysis reveals one main effect; objective feedback has a greater impact on performance than subjective feedback. The effect is explained mainly by two components: (1) the quantitative nature of the task causes subjects to experience objective feedback as more understandable compared to subjective feedback and; (2) negative subjective feedback has a more damaging psychological effect compared to negative objective feedback. Our analysis also displays a trend in which subjects assigned performance pay perform better compared to subjects assigned fixed pay. However, the effect is not statistically significant. Moreover, we find that there exists a certain complementarity between objective feedback and performance pay but an interaction effect cannot be determined.