The Performance Implication of Goal Achievability in Incentive Contracts and Feedback

This study investigates the performance feedback and goal achievability in incentive effects on employees' effort and performance. We perform an experiment to examine whether the use of goal-specific feedback and incentive contracts have an interaction effect on task performance. Using the Mirametrix S2 eye tracking device to measure the level of effort, we find that the feedback effect on effort depend on goal achievability specified in the incentive contract. Specifically, we find that when employees are contracted based on achievable goals, feedback decreases their level of effort. By contrast, when employees are contracted based on more challenging but attainable goals, feedback increases their level of effort. Furthermore, we find that the level of effort has a significant positive impact on task performance. These findings have important implications for the design of control and compensation systems in organizations that aim for a higher employees' performance