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Introduction

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Design of Incentive Systems

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

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Abstract

Across cultures, religions and philosophies of life, thinkers have contemplated about human nature. Why do people feel as they feel? What makes people act as they act? What motivates people? The question about the basic nature of humans has powerfully influenced human relations in our society. For instance, Hobbes’ points of view on the behavior of humans such as: “if any two men desire the same thing, which neverthelesse they cannot both enjoy, they become enemies” have been particularly influencing ideas about the authority and sovereignty of states. With respect to organizations, conceptions about the nature of man have also strongly influenced theories of human organizations and human organizations themselves. For example, Taylor’s view expressed in statements as: “The natural laziness of men is serious” or, “There is no question that the tendency of the average man (in all walks of life) is toward working at a slow, easy gait” has influenced organizational architecture in a way that organizations have placed emphasis on strong managerial control and bureaucratic hierarchy.

Behind every managerial decision or action are assumptions about human nature and human behavior.

Douglas MacGregor (1906 Detroit – 1964 Massachusetts)

MacGregor (1960), p. 33

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Notes

  1. 1.

    Hobbes (1651), p. 61.

  2. 2.

    Cf. Knowles and Saxberg (1967), pp. 22ff.; Refer to Knowles and Saxberg (1967) for a review on prominent scholars having influenced the assumptions on human nature.

  3. 3.

    Taylor (1993), p. 1350.

  4. 4.

    Taylor (1993), p. 1349.

  5. 5.

    Allee (1951), p. 203.

  6. 6.

    Roethlisberger et al. (1949), p. 591; Refer to Knowles and Saxberg (1967), p. 32; Miles (1975), pp. 31–50; Johnson and Gill (1993), pp. 39–67 or Griffin (2008), pp. 34ff., 39ff. for an overview about the evolution of motivation theory with respect to organizations considering scientific management or human relations points of view.

  7. 7.

    In order for motives to result in human behavior or action, the proper motives need to meet the proper incentives. If there is a motive-incentive fit, motivation for action results (Heckhausen (1980), p. 34; von Rosenstiel (1999), pp. 50f.; Staehle et al. (1999), p. 166).

  8. 8.

    Knowles and Saxberg (1967), p. 23.

  9. 9.

    MacGregor (1960), p. 33.

  10. 10.

    Cf. Institute of Management & Administration (2002b), pp. 9ff.; Institute of Management & Administration (2008), pp. 11f.

  11. 11.

    Hewitt Associates cited in Institute of Management & Administration (2002a), p. 7.

  12. 12.

    Cf. Institute of Management & Administration (2010), p. 13.

  13. 13.

    Cf. Nastansky and Lanz (2010), pp. 39, 44.

  14. 14.

    Cf. Nastansky and Lanz (2010), pp. 39ff.

  15. 15.

    Cf. Institute of Management & Administration (2010), p. 13.

  16. 16.

    A goal of monetary incentives which is not addressed in this study is the coordinating objective referring to divisions. Problems of coordinating and controlling divisions are discussed in Küpper (2008), p. 457 or Groves and Loeb (1979). Groves and Loeb (1979) suggest a control structure which provides divisional managers with incentives to transmit accurate information to the headquarters and act in congruence with overall company goals.

  17. 17.

    Cf. Gerhart and Rynes (2003), p. 70.

  18. 18.

    Cf. Gerhart and Rynes (2003), p. 70; Refer to Lazear (1986), pp. 407ff.; Lazear (1998), pp. 61ff for analytical considerations of incentive and sorting effects. Refer to Chiappori and Salanié (2003) for a survey on incentive and sorting effects.

  19. 19.

    Cf. Jensen and Meckling (1976); Salop and Salop (1976); Demski and Feltham (1978); Fama (1980); Petersen (1989), pp. 22ff.; Milgrom and Roberts (1992), pp. 149ff.; Frese (1992), pp. 71ff.; Gibbons (1998), pp. 2f.; Laffont and Martimort (2002); Macho-Stadler et al. (2005), pp. 1ff.; Salanié (2005), p. 4; In agency literature sorting effects may refer to signaling, screening, self-selection or adverse selection problems.

  20. 20.

    Cf. Wright and Aboul-Ezz (1988), p. 143; Waller and Bishop (1990); van Dijk et al. (2001); Cadsby et al. (2007).

  21. 21.

    Cf. Awashti and Pratt (1990); Pokorny (2008).

  22. 22.

    Cf. Ashton (1990); Gneezy and Rustichini (2000), p. 794; Gächter et al. (2001).

  23. 23.

    Cf. Ashton and Ashton (1995b); Prendergast (1999); Camerer and Hogarth (1999); Bonner et al. (2000); Libby et al. (2002); Bonner and Sprinkle (2002); Sprinkle and Williamson (2007); Bonner (2008); For a contingency theory overview refer to Johnson and Gill (1993), p. 41 or Dessler (1976), pp. 46f.

  24. 24.

    Cf. Burks et al. (2009).

  25. 25.

    Cf. Burks et al. (2009), p. 464.

  26. 26.

    Cf. Burks et al. (2009), p. 467.

  27. 27.

    Cf. Ashton and Ashton (1995b); Prendergast (1999); Camerer and Hogarth (1999); Bonner et al. (2000); Libby et al. (2002); Bonner and Sprinkle (2002); Sprinkle and Williamson (2007); Bonner (2008).

  28. 28.

    Cf. Demski and Feltham (1978); Lazear (1986), pp. 407ff.; Milgrom and Roberts (1992), pp. 154ff.; Lazear (1998), pp. 61ff.; Chiappori and Salanié (2003).

  29. 29.

    Cf. Gerhart and Rynes (2003), pp. 151f.

  30. 30.

    Burks et al. (2009), p. 466.

  31. 31.

    Román (2009), p. 614.

  32. 32.

    Banker et al. (2001), p. 337.

  33. 33.

    Cf. Dohmen and Falk (2011); Cadsby et al. (2007); Eriksson and Villeval (2008); Eriksson et al. (2009).

  34. 34.

    Lazear (2004), p. 21.

  35. 35.

    Bonner et al. (2000), p. 40.

  36. 36.

    Cf. Gerhart and Rynes (2003), pp. 151f.

  37. 37.

    Cf. Bonner et al. (2000), p. 40; Gerhart and Rynes (2003), pp. 151f.; Lazear (2004), p. 21.

  38. 38.

    Cf. Dohmen and Falk (2011); Banker et al. (2001); Burks et al. (2009); Román (2009).

  39. 39.

    To the best of present knowledge, only Lazear (2000), pp. 1353, 1359 states figures about the sizes of incentive as compared to sorting effects. The total productivity increase of 44 % found in his study is reported to be half because of incentive and half because of sorting effects.

  40. 40.

    Cf. Prendergast (1999); Camerer and Hogarth (1999); Bonner et al. (2000); Libby et al. (2002); Bonner and Sprinkle (2002); Sprinkle and Williamson (2007); Bonner (2008).

  41. 41.

    Refer to Dohmen and Falk (2011); Eriksson and Villeval (2008) or Eriksson et al. (2009) for studies regarding sorting effects; Refer to Paarsch and Shearer (2000); Shearer (2004) or Paarsch and Shearer (2007) for studies on the incentive effect.

  42. 42.

    Cf. Eriksson and Villeval (2008), p. 413.

  43. 43.

    Cf. Baiman (1990), p. 346; Prendergast (1999); Ackerberg and Botticini (2002); Chiappori and Salanié (2003), p. 116; Eriksson and Villeval (2008), p. 413.

  44. 44.

    Cf. Sprinkle (2003), pp. 288f.

  45. 45.

    Cf. Friedman and Sunder (1994), pp. 22ff.; Sprinkle (2003), pp. 288f.

  46. 46.

    Cf. Lazear (2000), p. 1352.

  47. 47.

    Cf. Bonner (2008), p. 103.

  48. 48.

    Cf. Bonner and Sprinkle (2002), pp. 313ff.; Lazear (2004).

  49. 49.

    Cf. Allen and Lueck (1992); Ackerberg and Botticini (2002), p. 567.

  50. 50.

    The term inventory is regularly used in psychology in order to describe a set of questions (items), which together form a hypothetical construct (Cf. Kaplan and Saccuzzo (2009), p. 121).

  51. 51.

    Cf. Göthlich (2007), p. 119.

  52. 52.

    Cf. Gerhart and Rynes (2003), pp. 48, 153, 161f.; Refer also to Birnberg et al. (2007) for an introduction to psychological concepts with relevance to accounting.

  53. 53.

    This presentation format is an accepted practice in literature (Cf. Dohmen and Falk (2011); Holt and Laury (2002); Pokorny (2008); Eriksson and Villeval (2008)). In addition, the specification of the contracts within the experimental design is a pre-condition for the modeling in Chap. 4, supporting the formulation of the hypotheses.

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  1. Institute of Business Administration, Universität Stuttgart, Stuttgart, Germany

    Dennis D. Fehrenbacher

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Fehrenbacher, D.D. (2013). Introduction. In: Design of Incentive Systems. Contributions to Management Science. Physica, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-33599-0_1

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