Experimental Examination of the Incentive and Sorting Effects of Pay-for-Performance on Creative Performance

There is long-standing debate over whether pay-for-performance (PFP) enhances or undermines creative performance. Traditional motivation and revised creativity theories suggest that PFP and intrinsic task interest combine additively to enhance creative performance, whereas cognitive evaluation theory and self-determination theory posit that PFP undermines task interest and thus intrinsic motivation and creative performance. To help resolve these conflicting predictions and provide a more comprehensive understanding of how and when PFP influences creative performance, this study incorporates both the incentive and sorting mechanisms of PFP, varying strengths of PFP, and task autonomy as a key moderator. A novel laboratory experiment was designed to capture key elements of workplace contexts, including in the design of the creative tasks, PFP strengths based on benchmarking of U.S. companies' practices, and allowing subjects to sort into different pay conditions, consistent with the opportunity for mobility in the labor market. The results showed that, through both incentive and sorting mechanisms, high PFP intensity enhanced creative performance more so than low PFP intensity, and both were superior to fixed pay. Importantly, task autonomy positively moderated the PFP-creative performance relationship, such that creative performance under PFP increased much more under higher task autonomy. Finally, the difference in creative performance under PFP versus fixed pay was greater when subjects were allowed to sort into their preferred pay conditions than when they worked only under randomly assigned pay conditions. Theoretical and practical implications and future research directions are discussed.