The Effects of Reward Frequency and Reward Conditionality on Drivers of Employee Performance

Recent incentive compensation trends suggest that many firms are (a) increasing the frequency with which they reward their employees and (b) providing gift-like unconditional rewards to employees irrespective of performance. This study investigates how reward frequency and reward conditionality jointly influence two important drivers of employee performance: the discovery of task efficiencies and the intensity of productive effort. We predict and find that the effect of reward frequency on employee behavior depends upon the conditionality of the rewards. Specifically, while increasing reward frequency has a negative effect on the number of efficiencies employees find when rewards are conditional, it has a positive effect on efficiency finding when rewards are unconditional. We also find that employees receiving conditional rewards exhibit higher output per efficiency than those receiving unconditional rewards, suggesting higher productive effort intensity for conditional rewards. Further, increasing reward frequency when rewards are conditional leads to higher output per efficiency, but when rewards are unconditional, there is no significant difference in output per efficiency from increasing reward frequency. Results of our study contribute to both theory and practice by providing a deeper understanding of the role reward frequency and reward conditionality play in influencing two important drivers of employee performance