The purpose of this paper is to examine the joint effects of performance feedback, assigned goal levels and types of compensation schemes (i.e. fixed-pay, piece-rate and goal attainment bonus) on subordinates’ task performance.
A laboratory experiment was employed to collect data. The subjects consisted of a total of 133 Australian business executives. The study used ANCOVA for data analyses, controlling subject’s practice trial scores as covariate.
The results provide strong support for a three-way interaction between performance feedback, assigned goal levels and types of compensation schemes on subordinates’ task performance. Specifically, the results reveal that the reliance of a piece-rate compensation scheme resulted in higher task performance when compared to fixed-pay and goal attainment bonus compensation schemes in the presence of performance feedback and assigned difficult goal levels situations. In addition, the results reveal that a goal attainment bonus compensation scheme leads to higher task performance when compared to a fixed-pay compensation scheme in the presence of performance feedback and assigned difficult goal levels situations.
These findings have important implications for compensation schemes design in firms that aim to achieve higher employees’ performance and organizational effectiveness.
