Ruhr Economic Papers

Ruhr Economic Papers #917

The Effects of Incentives, Social Norms, and Employees’ Values on Work Performance?

by Michael W.M. Roos, Jessica Reale and Frederik Banning

RUB, 08/2021, 35 S./p., 8 Euro, ISBN 978-3-96973-063-8 DOI: 10.4419/96973063

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Abstract

This agent-based model contributes to a theory of corporate culture in which company performance and employees’ behaviour result from the interaction between financial incentives, motivational factors and endogenous social norms. Employees’ personal values are the main drivers of behaviour. They shape agents’ decisions about how much of their working time to devote to individual tasks, cooperative, and shirking activities. The model incorporates two aspects of the management style, analysed both in isolation and combination: (i) monitoring efforts affecting intrinsic motivation, i.e. the firm is either trusting or controlling, and (ii) remuneration schemes affecting extrinsic motivation, i.e. individual or group rewards. The simulations show that financial incentives can (i) lead to inefficient levels of cooperation, and (ii) reinforce value-driven behaviours, amplified by emergent social norms. The company achieves the highest output with a flat wage and a trusting management. Employees that value self-direction highly are pivotal, since they are strongly (de-)motivated by the management style.

JEL-Classification: D24, D91, J22, M52

Keywords: Values; social norms; remuneration systems; intrinsic motivation; monitoring; agent-based modelling

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