the
discovery of production efficiencies. For example, prior research explores the efficacy of employee
suggestion programs that directly reward individuals or groups for providing innovative ideas
(Welbourne et al. 1995). However, rewarding ideas can be challenging because the process
involves a high degree of subjectivity, and emphasizing the discovery of ideas rather than their
development and implementation may not necessarily lead to productivity gains (Jain et al. 2010).
Thus, similar to our setting, many organizations reward outside-the-box thinking based on whether
the innovations can be translated into measurable outcomes (Zingheim and Schuster 2007). By
tying rewards to measurable outcomes, prior research suggests that incentive schemes such as
gain-sharing plans can lead to more efficient production such as using less labor hours per unit
produced (Welbourne et al. 1995). However, in the natural environment, it is difficult to isolate
whether these gains are effort-based or caused by more efficient production techniques.3 Our
research highlights the importance of breaking productivity down into these important determinants
when examining the efficacy of incentive mechanisms such as productivity targets and target-based
pay.
The next section provides background and develops the hypotheses, and Section III describes
the method used to test these hypotheses. Section IV presents the results, and Section V provides a
summary discussion of the results and conclusions.
II. BACKGROUND, THEORY, AND HYPOTHESES
Background and Research Setting
A common key to the success of today’s organizations is the ability and willingness of their
employees to engage in outside-the-box thinking, which involves embracing ‘‘new ways of
conceptualizing old problems’’ (Magretta 2002, 90) and can result in productivity-enhancing
approaches to performing a task (Shalley 1991, 1995). Importantly, research often describes
outside-the-box thinking as occurring in settings in which well-defined constraints exist with
respect to the availability of resources or the amount of time available to identify solutions
(Magretta 2002; Matthews 2004). When allocating these scarce resources, an ongoing challenge is
motivating employees to move away from their relatively safe, conventional task approaches and
engage in a riskier search for new, better ways to perform the task. That is, outside-the-box thinking
often involves a number of cognitive processes that include monitoring the environment for
potential production efficiencies, generating hypotheses about potential efficiencies, testing these
hypotheses, and processing feedback about the tests’ results that may or may not lead to the
successful discovery of a more efficient task approach (Shalley 1995).
For the purposes of our study, a conventional approach to task performance is based on prior
experience or instruction (e.g., ‘‘the way we’ve always done things’’), which, while sensitive to
productive effort, imposes an effective upper limit on performance potential. Conversely,
production efficiencies, if discovered and successfully implemented, allow for greater productivity.
Importantly, once discovered, production efficiencies are also sensitive to effort. That is, simply
discovering the efficiencies will not necessarily lead to higher productivity; individuals must still
apply effort in using them.4
In sum, to enhance the study’s external validity, we develop our hypotheses in the context of a
setting that our literature review suggests should possess the following features: (1) individuals can
choose the extent to which they will perform a task using a conventional approach versus
attempting to identify production efficiencies; (2) exerting more effort using conventional
techniques will lead to productivity gains; (3) identifying and using production efficiencies will
result in greater productivity gains than the conventional approach, assuming effort is held constant;
and (4) constraints exist affecting the extent to which the identification of production efficiencies
can successfully occur (e.g., limited time, task complexity, limited feedback) (Thompson et al.
1997; Bailey and Bristow 2004; Matthews 2004). In all, we create an environment where, subject to
resource constraints, both identifying production efficiencies and working harder using either
conventional or more efficient production approaches (i.e., productive effort) can increase
productivity. Within this environment, we discuss how varying productivity-target difficulty and
the presence and absence of target-based pay can combine to influence the identification of
production efficiencies and productive effort.
Identifying Production Efficiencies
Productivity-Target Difficulty and the Identification of Production Efficiencies
When determining the level of productivity-target difficulty most likely to encourage
discoveries of production efficiencies, theory and the practitioner literature offer two potential
strategies. First, set challenging productivity targets that can only be achieved through the
identification of production efficiencies.5 Here, the utility that many individuals derive from target
attainment would likely motivate them to expend effort searching for production efficiencies as the
only means of attaining challenging productivity targets (Hollenbeck and Klein 1987; Locke and
Latham 1990; 2002; Klein 1991; Lee et al. 1997; Bonner and Sprinkle 2002). Second, set
productivity targets that can be easily achieved using conventional approaches such that individuals
have the flexibility or slack to engage in the risky search for production efficiencies (Sprinkle et al.
2008). Because this literature suggests that either challenging or easy targets may be more likely to
encourage individuals to spend their scarce time thinking outside-the-box, we focus our theoretical
development on targets of these two types.6
While both challenging and easy targets could potentially encourage outside-the-box thinking,
the effectiveness of these efforts may differ across these target types. Specifically, psychology-based
research suggests that the pressure experienced while attempting to attain challenging targets can have
dysfunctional consequences on the effectiveness of outside-the-box thinking (Eysenck 1982; Huber
1985; Earley et al. 1989). Distraction theory in cognitive psychology proposes that stress induced by
factors such as challenging targets or target-based pay can cause people to ‘‘choke under pressure,’’
particularly on tasks that place high demands on working memory (Beilock et al. 2004; Beilock and
Carr 2005; Markman et al. 2006, 944). Working-memory-intensive tasks involve cognitive operations
that impose inter-related demands on information storage and processing (Beilock et al. 2004, 598).
Distraction theory posits that pressure or anxiety reduces the attentional resources available in
working memory, which in turn, hinders cognitive performance (Markman et al. 2006).
Moreover, prior research suggests that the anxiety of trying to reach a challenging target impairs
many of the same processes that can facilitate the discovery of production efficiencies. Specifically, to
discover production efficiencies, individuals often must utilize strategies that require significant
working memory resources as they consciously use information in the task environment to develop
hypotheses about specific efficiencies, test them, and receive feedback regarding the accuracy of their
reasoning (DeShon and Alexander 1996; Maddox et al. 2004; Stadler 1997; Shalley 1995; Ziori and
Dienes 2008; Dienes and Berry 1997). To the extent that the pressure induced by challenging targets
impairs these processes, challenging targets could hinder individuals’ ability to identify production
efficiencies (Beilock et al. 2004; Markman et al. 2006).7 If so, then the lower pressure resulting from
easy targets relative to challenging targets may actually help facilitate more effective outside-the-box
thinking, leading to the discovery of more production efficiencies.
Target-Based Pay and the Identification of Production Efficiencies
Target-based pay relative to fixed pay may also lead to dysfunctional effects with respect to the
identification of production efficiencies (e.g., Humphreys and Revelle 1984; Wood et al. 1987). In
particular, target-based pay may focus attention on conventional approaches at the expense of outsidethe-
box thinking. For example, Shapira (1976) and Pittman et al. (1982) report that participants
receiving target-based pay focus narrowly on the attainment of the target in order to receive their
reward. As a result, they choose simpler versions of a game or puzzle that increase their expectancy of
success, while those receiving fixed pay prefer more challenging versions, which they likely find
more intrinsically interesting. Similarly, Amabile (1996) offers that performance-based pay in general
motivates people to focus excessively on doing what they need to do to earn rewards; as a result, they
direct their efforts toward less risky and more predictable task approaches.
The extent to which target-based pay affects effort directed to the conventional task approach
would likely depend on the difficulty of the assigned productivity target. In our setting, an easy
productivity target is attainable by using the conventional approach to the task. Thus, individuals
who are assigned an easy target and paid to meet or exceed it may disproportionately use the less
risky conventional approach.8 That is, they would spend less time attempting to identify production
efficiencies than if paid a fixed wage.
Since identifying production efficiencies provides the only means of reaching challenging
targets in our setting, pay tied to attaining challenging targets would be unlikely to reduce the time
and effort spent searching for them. However, the effectiveness of linking pay to meeting and
beating challenging targets onpay