Piece Rates and Multitasking

20 July 2015 at 8:32 am Peter G. Klein 1 comment

| Peter Klein |

piece A canonical result of multitask agency theory is that, when agents are assigned to multiple activities and some are more easily measured than others, piece-rate incentive schemes encourage agents to focus on the measurable activities while shirking the others. Professors at research universities, for example tend to focus on research at the expense of teaching — not because they don’t care about teaching, but because research output is easy to measure, while teaching quality isn’t, so administrators wishing to reward good performance tend to base their evaluations on research productivity. Or so I’ve heard (ahem). The implication is that, to encourage balanced effort and performance across activities, supervisors should rely at least partly on subjective, holistic evaluation criteria, and not just objective, quantitative measures of employee performance, or even do away with incentive compensation altogether.

An interesting paper in the January 2015 Southern Economic Journal offers a different theory, and some experimental evidence to back it up, suggesting that piece rates may actually be better than other schemes under multitasking. The idea is that agents may be uncertain about the principal’s monitoring ability, and the choice of a piece-rate scheme signals that the principal is a good monitor. This signaling effect can, under certain conditions, overcome the standard distortionary effect described above. Put differently, relying on subjective, holistic evaluation criteria, or abandoning performance measurement altogether (Alfie Kohn cheers!), may signal a sophisticated, experienced principal, but may also signal a principal who is too lazy to pay attention to employee behavior at all.

The paper is by Omar Al-Ubaydli, Steffen Andersen, Uri Gneezy, and John List and is cleverly titled “Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes.” (Yes, it is part of the List Project on which we have mixed opinions.) Here is more on multitasking.