Productivity-Target Difficulty, Target-Based
Pay, and Outside-the-Box Thinking
ABSTRACT: In an environment where individual productivity can be increased through
efforts directed at a conventional task approach and more efficient task approaches that
can be identified by thinking outside-the-box, we examine the effects of productivitytarget
difficulty and pay contingent on meeting and beating this target (i.e., target-based
pay). We argue that while challenging targets and target-based pay can hinder the
discovery of production efficiencies, they can motivate high productive effort whereby
individuals work harder and more productively using either the conventional task
approach or more efficient task approaches when discovered. Results of a laboratory
experiment support our predictions. Individuals assigned an easy productivity target and
paid a fixed wage identify a greater number of production efficiencies than those with
either challenging targets or target-based pay. However, individuals with challenging
targets and/or target-based pay have higher productivity per production efficiency
discovered, suggesting these control tools better motivate productive effort. Collectively,
our results suggest that the ultimate effectiveness of these control tools will likely hinge
on the importance of promoting the discovery of production efficiencies relative to
motivating productive effort. In doing so, our results provide a better understanding of
conflicting prescriptions from the practitioner literature and business press