The Effect of Task Complexity on the Relation Between Team-based Incentives and Performance

1. Introduction

In this study I want to look at the effect of task complexity on the relationship between team-based incentives and performance. I will thus try to find whether task complexity is a moderating variable in the relation between incentives and performance and specifically try to find whether this effect differs for individual incentives and team incentives.

When looking at incentive contracts in management accounting literature, usually theories from the field of economics and psychology are combined. In some circumstances these theories can lead to quite opposing predictions of the effect of incentives on performance. In general incentive contracts are a decision influencing control tool used to make sure that people’s and the organizations goals are aligned. There are different theories about the effect of incentives on performance. In general, considering the working environment the prediction and empirical finding is that incentives increase performance or ‘you get what you pay for’. Although what you pay for is not always what the company, organization or society actually wants as is explained by Kerr (1975). In this paper I will not focus on these anomalies, but merely on the well-established relation between incentives and performance. Prendergast (1999) sees incentives as ‘the essence of economics’ . There is quite a lot of evidence suggesting that that there is a strong relation between pay-for performance and productivity. This is in line with predictions based on agency theory. Agency theory (Jensen and Meckling (1976), Jensen (1983), Gibbons (1996)) predicts that to make sure the employee exerts effort this needs to be made the rational choice. For it to be rational to exert effort incentives are ne...

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