The effects of incentives, social norms, and employees' values on work performance

TL;DR

This agent-based model explores how incentives, social norms, and personal values influence employee behavior and company performance, highlighting the complex interactions and optimal management strategies.

Contribution

It introduces a comprehensive agent-based model integrating financial incentives, social norms, and personal values to analyze corporate culture effects.

Findings

Financial incentives can cause inefficient cooperation levels.

Trusting management and flat wages maximize output.

Employees valuing self-direction are highly influenced by management style.

Abstract

This agent-based model contributes to a theory of corporate culture in which company performance and employees' behaviour result from the interaction between financial incentives, motivational factors and endogenous social norms. Employees' personal values are the main drivers of behaviour. They shape agents' decisions about how much of their working time to devote to individual tasks, cooperative, and shirking activities. The model incorporates two aspects of the management style, analysed both in isolation and combination: (i) monitoring efforts affecting intrinsic motivation, i.e. the firm is either trusting or controlling, and (ii) remuneration schemes affecting extrinsic motivation, i.e. individual or group rewards. The simulations show that financial incentives can (i) lead to inefficient levels of cooperation, and (ii) reinforce value-driven behaviours, amplified by emergent social norms. The company achieves the highest output with a flat wage and a trusting management. Employees that value self-direction highly are pivotal, since they are strongly (de-)motivated by the management style.