Dismissal threats and the efficacy of performance-based incentives
Hudgins, Ryan Matthew
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Permalink
https://hdl.handle.net/2142/106451
Description
Title
Dismissal threats and the efficacy of performance-based incentives
Author(s)
Hudgins, Ryan Matthew
Issue Date
2019-11-22
Director of Research (if dissertation) or Advisor (if thesis)
Chen, Clara
Doctoral Committee Chair(s)
Williamson, Michael
Committee Member(s)
Vargas, Patrick
Wright, William F
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
dismissal threats
bonus
penalty
contract framing
contrast effects
Abstract
Prior research finds that the threat of being fired is effective at motivating effort. In this study, I use three experiments to examine how the presence of a dismissal threat may affect the efficacy of other incentives used by firms. Using theory on contrast effects, I argue that the mere presence of a dismissal threat changes employees’ response to additional incentives such that performance-based incentives are less motivating in the presence of dismissal threats if those incentives are framed as penalties rather than bonuses. Specifically, when dismissal threats are present, I expect employees to anticipate less negative affect and exert less effort in response to penalties, but I do not expect employees to anticipate less positive affect and exert less effort in response to bonuses. I generally find support for the underlying theory: in all three experiments, the presence of dismissal threats leads to lower forecasted negative affect for penalties but leads to no change in forecasted positive affect for bonuses. In the third experiment, when the consequences of dismissal are significant and salient, I find support for my hypothesis such that the presence of dismissal threats leads to lower effort in response to penalties but does not lead to lower effort in response to bonuses. My results suggest that when dismissal threats are present and the consequences of dismissal are salient, performance-based incentives framed as penalties may not be more effective than those framed as bonuses, contrary to prior research on contract framing.
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