When I think of incentive based pay I think of sales people who are constantly calling round trying to drum up business. Some ‘del boy trotter’ (English sitcom reference for all you Americans!) using the gift of the gab to try and earn an extra few quid before the end of the week.
For those of you who don’t know the set up of incentive based pay it usually includes a small basic salary that workers receive just to cover their time at work and then they will earn commission or a percentage of each sale.
This is supposed to give sales people a reason to work harder and get more sales for the company, so good for the company and good for the worker. Win win right?
Does it Work?
The problem for employers who use this pay scale is does it actually earn them extra sales or is it only a way to save money in hard times when they don’t get enough sales.
A study performed by Dickinson & Frisch, 1990 looked at whether participants worked harder for more incentive. There were 5 different conditions of 0% commission, 10%, 30%, 60% and 100%. For each of those conditions the participant had to complete a base amount of work and then for every item they completed over that amount they earned the commission that was assigned to their condition.
The results found that the participants did work harder when they were assigned to a commission based condition but interestingly the amount of commission offered didn’t significantly affect the amount of extra items that participants made.
Is Incentivized Pay Worth it?
The simple answer to this is yes. Participants worked harder when they knew they were getting a direct reward for the amount of work they were doing. However employers beware, it doesn’t seem like people care how much commission it is they get so don’t over pay!
The problem is though that this study was performed over only 45 minutes so it isn’t that ecolocigally valid. People in the real world I’m sure would start to notice that their monthly paycheck wasn’t to impressive if they were only getting 10% commission compared to 100%.