Jonas Fooken

• November 12, 2019
• Speaker: Jonas Fooken
  
• Topic: Performance-Based Pay, Motivation, Stress And Preferences by Jonas Fooken, Alanah Jenner, and Stacey Parker
  

In employment contracts, performance-based pay can motivate higher employee effort. However, in practice, not everyone performs better with explicit incentives. This could be because incentives increase performance-enhancing effort but also performance-reducing stress. In this study, we investigate if (between-individual heterogeneity in) the effect of performance-based pay can be explained by stress.

We hypothesise that workers experience more stress when their pay is performance-based, but performance is only adversely affected by this stress for some individuals. Using students as workers in a laboratory experiment, we test performance under three payment schemes: Fixed pay, gain-framed performance-based pay and loss-framed performance-based pay. Participants state their payment scheme preference, before and after working under the different schemes, and work in a randomly chosen scheme.

All participants work once in each pay scheme. We record participants’ self-reported effort, their (quantitative and qualitative) performance and their stress. To measure stress we elicit self-reported anxiety and fatigue, and record their heart rate variability. Our results show that performance-based pay increases effort, but not necessarily performance. The pay schemes also affect stress, a possible mediator between effort and performance. We also find differences in terms of the effect of stress on effort, in terms of the relationship between performance and stress under gain-framed and loss-framed pay, and we observe substantial changes in the preferred pay scheme after experiencing all three alternatives.

Dr Jonas Fooken is a postdoctoral research fellow at the Centre for the Business and Economics of Health (CBEH), specialising in topics of behavioural economics. He joined CBEH from a research position in the Behavioural Economics Team of the European Commission’s Joint Research Centre. His main ongoing research project, supported by a UQ Early Career Researcher Grant, is to study the economic preferences of older adults.
These preferences tell us how we would like to use our economic resources – our money – if we can use them now or in the future, share them with others, or make investments. To study economic preferences is a typical topic of behavioural economics, but most data on these preferences has been collected using students. With growing numbers of older adults in the population, most of whom are active, fit and frequently make decisions over their resources, it is essential to know if economic preferences change when we become older. Dr Fooken’s research addresses this gap in the knowledge.