Markus C. Arnold/Eva Ponick/Heike Y. Schenk-Mathes*

Employee of the Month – Effects of Material and Immaterial Extrinsic

Incentives on Team Production**

Abstract

A laboratory experiment was designed to replicate the employee of the month (EOM)

tournament in many firms by showing participants the photo of the team member hav-

ing contributed most to the team output in the preceding round. The experiment allows

quantifying the effects of the extrinsic immaterial incentives provided by the EOM

tournament and to compare it to the effects of a monetary premium. In contrast to prior

experiments examining the effects of identification and decreasing social distance on

cooperation in social dilemmas, the partial and voluntary identification in our experi-

mental setting does not yield any positive incentive to increase contributions to the team

output.

JEL classification: C92, J33, M12, M52

Keywords: Employee of the month; immaterial incentives; team production; group

incentives; experimental economics

* Dr. Markus C. Arnold, Department of Finance, Accounting and Taxes, Georg-August University of Göttingen, Platz der Göttinger Sieben 3, D-37073 Göttingen, Dipl.-Math. Eva Ponick and Prof. Dr. Heike Y. Schenk-Mathes, Institute of Management and Economics, Clausthal University of Technology, Julius-Albert-Str. 2, D-38678 Clausthal-Zellerfeld. Corresponding author: Prof. Dr. Heike Y. Schenk-Mathes, Institute of Management and Economics, Clausthal University of Technology, Julius-Albert-Str. 2, D-38678 Clausthal-Zellerfeld, heike.schenk-mathes@tu-clausthal.de, fon: +49-5323-727604. ** We thank participants at the 2005 European Workshop on Distributed Decision Making for helpful suggestions and particularly Mathias Erlei, Robert M. Gillenkirch and Rudolf Vetschera whose comments greatly improved earlier versions of this paper. We also thank Stefan Geisler for his excellent assistance with the technical implementation of the experiment.

Employee of the Month – Effects of Material and Immaterial Extrinsic

Incentives on Team Production

Abstract

A laboratory experiment was designed to replicate the employee of the month (EOM)

tournament in many firms by showing participants the photo of the team member hav-

ing contributed most to the team output in the preceding round. The experiment allows

quantifying the effects of the extrinsic immaterial incentives provided by the EOM

tournament and to compare it to the effects of a monetary premium. In contrast to prior

experiments examining the effects of identification and decreasing social distance on

cooperation in social dilemmas, the partial and voluntary identification in our experi-

mental setting does not yield any positive incentive to increase contributions to the team

output.

JEL classification: C92, J33, M12, M52

Keywords: Employee of the month, immaterial incentives, team production, group

incentives, experimental economics

1

1 Introduction

It has often been argued that employees do not only respond to material and particularly

monetary incentives provided by their firm but that immaterial incentives play an

equally important role in determining their behavior (e.g., Jensen und Meckling (1976),

Frey (1997), Fehr and Falk (2002)). So far, research has largely concentrated on mone-

tary incentives or has analyzed immaterial intrinsic incentives1, but, as Frey and Neck-

ermann (2006) note, there is no scientific analysis of awards and their immaterial extrin-

sic incentives (like e.g. power, prestige, recognition).

While Frey and Neckermann (2006) focus on medals and orders which are more common

in the public sector,2 this paper experimentally explores one of the most common forms

of awards in the private sector, the employee of the month (EOM) tournament. In order

to examine the incentive effects of such a tournament on the provision of effort by work

team members, we conduct an experiment in which the photo of the team member having

contributed most to the team output in the previous round is shown to the whole team.

Moreover, we compare this incentive to the impact of a (small) monetary premium.

Despite the widespread use of EOM tournaments in practice and the general acceptance

of their motivating force for employees (e.g., Cacioppe (1999), Kerrin and Oliver

(2002)), we only found one scientific analysis of their incentive effects. In a survey

study, Rehu, Lusk and Wolf (2004) analyze the effects of cultural factors on different

incentive devices and, amongst others, also consider EOM rewards. They find that these

rewards are non-motivating for German employees in contrast to employees in the US,

China and Japan. However, in their survey, the exact nature of this reward is left open.

Thus, the relevant literature for our experiment essentially consists of two large groups:

first, our experiment is related to the literature on team production and group incentives

and, particularly, to their experimental tests; second, it is related to experiments examin-

ing how reduced social distance between players affects experimental outcomes. Social

distance can be reduced either by identifying game partners (e.g. via photographs) or by

allowing communication between them.

The baseline treatment of our experiment is a simple 1N -problem of revenue sharing

going back at least to Holmström (1982).3 Nalbantian and Schotter (1997) experimen-

1 For the distinction between intrinsic and extrinsic incentives see e.g. Deci (1971). 2 See also Frey (2003) regarding this point. 3 Even earlier, Alchian and Demsetz (1972) take comparable free rider problems in groups as starting

point for their theory of the firm.

2

tally examine different monetary incentive mechanism to solve this problem of free rid-

ing in teams and find that especially tournament based incentive schemes between dif-

ferent work teams yield high effort levels. Of course, this group incentive problem is

closely related to the structure of public good games that have been extensively tested in

experiments4, also involving tournament structures based on the relative and absolute

performance of the team members (Dickinson and Isaac (1998) and Dickinson (2001)).5

However, it has not yet been analyzed how immaterial extrinsic incentives provided e.g.

by an EOM tournament affect team production.

More recently, experimenters have begun to examine the effects of decreasing social

distance between the participants on experimental outcome. Decreasing social distance

typically involves breaking up total anonymity between players. This can be done for

example by allowing communication between players6, by transmitting the names of the

game partners7 or by identifying them via photos or direct face-to-face encounters with-

out communication.8

The effect of decreasing social distance on cooperative behaviour is generally positive,

though not always significant and depends both on the game and its strategic aspects.

Particularly communication seems to elicit more cooperative behavior. However, Bohnet

and Frey (1999) show that mutual identification without communication might in some

cases be enough to increase cooperation and that communication might not add much

beyond this identification effect. Likewise, Fox and Guyer (1978) find significantly more

cooperation in a prisoner's dilemma game when people can see each other while making

their decisions, and Andreoni and Petrie (2004b) find a positive but insignificant in-

crease in contribution rates to a public good when people see the photos of their team

members. Particularly, the results of the photo+information treatment of Andreoni and

Petrie (2004b), in which both the photos of the team members and their contributions to

the team output are published, are very promising for our experimental setting as they

show an increase in the average contribution of 59% relative to complete anonymity.

4 See, e.g., Ledyard (1995) for an overview of these experiments. 5 Other experimental analyses of tournament based incentive schemes are e.g. Bull, Schotter and Wei-

gelt (1987) and Schotter and Weigelt (1992). 6 For the effects of communication on social dilemma situations see Dawes, McTavish and Shaklee

(1977), Isaac, McCue and Plot (1985), Isaac and Walker (1988), Brosig, Weimann and Ockenfels (2003). See Sally (1995) for a meta-analysis.

7 See, e.g., Charness and Gneezy (2003). 8 See Fox and Guyer (1978), Bohnet and Frey (1999), Burnham (2003) and Andreoni and Petrie

(2004b). Scharlemann, Eckel, Kacelnik and Wilson (2001) test the effect of smiling faces on coopera-tion. Solnick and Schweitzer (1999) and Andreoni and Petrie (2004a) analyze the effect of physical attractiveness on the outcome of ultimatum, dictator and public good games.

3

Our experimental design differs from the existing literature in one crucial point. Usu-

ally, identification is forced and includes all participants. In contrast, our experiment

introduces partial and voluntary identification by, first, showing only the photo of the

highest contributor in every round, and, second, by giving the participants in some ses-

sions the option to have their photo replaced by a white space in case they contribute

most to the team output. Consequently, in our experiment, participants with low contri-

butions are never identified (partial identification), and, in some treatments, even identi-

fication of the participants with the highest contribution is voluntary.9 Thus, our ex-

periment also provides a so far missing link between complete anonymity and forced

identification for every participant.

Analyzing the question of partial and voluntary identification is important for mainly

two reasons: first, it allows better discrimination between different motives for in-

creased cooperation in experiments when complete anonymity is abandoned; second, it

might be closer to some real life conditions than forced identification, as free riders can

often hide in the mass and thus need not always be identifiable in reality.

With respect to the first point, increased contributions to the team output in situations

with mutual identification could stem from positive or negative motives. Positive mo-

tives include the prestige of being a high contributor, the pride derived from the poten-

tial recognition from others and the intention to signal cooperative behavior to elicit

higher contributions from other team members. According to Andreoni and Petrie

(2004b), players motivated by the positive motives of pride and prestige, so-called

‘leaders’ or ‘example setters’, play an important role in determining the behavior of

‘followers’ in the group. Their impact is particularly strong when they get credit for

their high contributions due to the identification effect. In contrast, a negative motive to

increase contributions is the shame and fear of being identified as a free rider of the

team.10 Thus, the question arises whether an EOM tournament also represents an envi-

ronment that positively affects the contributions of ‘leaders’ such that these leaders

emerge as the EOMs. This should be the case if the driving force behind the strongly

increasing contributions to the team output in prior experiments is the pride or the pres-

tige of being the highest contributor. Otherwise, if the shame of being identified as a

9 This is also in contrast to the so-called option of anonymity in Andreoni and Petrie (2004b). In their

relevant treatment, there were two public goods with identical payoff consequences, a ‘broadcast’ and an ‘anonymous’ public good. However, as every participant's contribution to the broadcast public good as well as his photo were always made public, contributors to the anonymous public good were effectively treated as free riders.

10 See Nathanson (1987) for the motives of pride and shame in human behavior.

4

free rider is the driving force behind the results of Andreoni and Petrie (2004b), it is

unlikely that EOM tournaments have strong effects on the contribution behavior. While

the experimental design of Andreoni and Petrie (2004b) does not allow differentiation

between these two motives, our experiment excludes the shame motive as free riders are

not identifiable for the team.

With respect to the second point described above, it is often argued that people do not

interact anonymously in reality and that therefore the complete anonymity condition in

experiments has considerable drawbacks. However, there are a lot of real situations

where the identity, especially of free riders, is not revealed. Most notably, this is the

case for donations, fund-raising activities and immaterial work team incentives: while

the identity of the donor or the employee providing the highest effort might be revealed

by listing his name in performance programs or displaying his photo on the EOM

plaque, it is just the identity of the free rider that remains anonymous. Thus, the revela-

tion of identity by contributing to a public good or providing increased effort to the

team production might represent a voluntary act and is not necessarily forced.11

As our experiment is designed as a 1N -problem, it focuses on the role of EOM tourna-

ments to provide incentives in work teams. Although this is not the only possibility for

the use of EOM tournaments as an incentive device (e.g., it is possible to have an award

for the best salesperson of a month), we chose this design in order to replicate EOM

tournaments at the lower end of a firm's hierarchy where team work is necessary at least

in some respects and monetary incentives are unusual, as e.g. the EOM tournaments

implemented in hotels or fast food restaurants. As, in these situations, EOM tourna-

ments might also substitute for monetary incentives, the monetary premium used in

some treatments as alternative incentive device is also small.

The principal findings of our experiment are: using photos as an immaterial incentive

device does not yield any positive incentive effect to increase the contributions to the

team output. Even in the self selection treatments where the participants had the choice

of whether their photo should be displayed or not, we do not find any evidence for a

positive photo effect. In contrast, the introduction of a small monetary premium always

increases the participants' contributions and can be self-financed by this increase in con-

11 Note however that, for fund raising and donations, showing only the photo(s) of the team member(s)

that contributed most might be a too strong restriction for two reasons: first, usually not only the na-mes of the donors having contributed most are made public but also the names of those who gave a positive but smaller amount; second, if the group of potential donors were small enough and the iden-tity of all potential donors were well known, the fact that one of them is not identified as donor would be equivalent to identifying him as a free rider.

5

tributions. The findings with respect to the incentive effect from the photos contrast sharply

those of Andreoni and Petrie (2004b). Our results suggest that the positive results of prior

experiments with identification are basically driven by the shame or fear of being identi-

fied as a free rider rather than by the pride or prestige of being the highest contributor.

Even participants who explicitly indicated to feel rewarded by having their photo dis-

played to the whole group did not raise their contributions to the team output in this

treatment. However, we find that these participants contributed significantly more to the

team output than the other players in all treatments (including the baseline treatment with

neither material nor immaterial incentives) and not only in the treatments involving the

immaterial photo incentive. This suggests that we have to draw a different conclusion

about the role of the photo. Instead of the photo being a strong positive incentive ex ante

for some participants that makes them increase their contributions, some cooperative

players seem to perceive the photo as an immaterial reward ex post for contributing a lot

to the team output. Thus, an EOM tournament might contribute to the work contentment

of cooperative players ex post and therefore be beneficial for the firm at the long run.

The remainder of the paper is structured as follows: section 2 describes the experimental

design. The experimental results are presented in section 3, and in section 4, we discuss

our findings with respect to EOM tournaments in reality.

2 Experimental design

Our experiment consisted of eight sessions. No participant took part in more than one

session. In each session, four treatments were played by all participants: a ‘baseline’

treatment without any monetary or immaterial incentives, a ‘premium treatment’ with

purely monetary incentives, a ‘photo treatment’ simulating an EOM tournament without

monetary rewards, and a ‘premium+photo treatment’ simulating an EOM tournament

with an additional monetary bonus for the EOM.

In each treatment of the experiment, every participant was assigned to one of three

groups of six members each. After every treatment, group compositions were randomly

changed. Before starting the experiment and after having read the instructions, the par-

ticipants completed nine training rounds to learn how the compensation scheme worked.

During these training rounds, the participants were not interacting in groups but the con-

tributions of other group members were simulated and communicated to the participants

before they made their decision. Furthermore, the points earned during the training

6

rounds had no effect on the participants' income from the experiment. This was all

known to the participants.

After the training had been completed, the experiment started. Every treatment was

played for 8 payoff rounds. The points the participants earned during the 32 payoff

rounds were added up and converted into Euros after the experiment. 18 points were

equivalent to 1 Euro.

Each group member i could invest an amount ie into a team project at a private cost of

)( ii ec . The project's output equalled the sum of all team members' inputs, i.e. 61=∑ ii e .

Accordingly, ie represents member i 's contribution to team output. Contributions were

restricted to be an integer between 0 and 40 points, and private costs were set to 21

60=i ic e for all members. All subjects had to make their decision at the same time, not

knowing what the other team members would do. The team output was equally split

among all team members. In addition, every participant received a fixed amount of 5

points in every payoff round in order to decrease the probability that high contributors

would finish up with a negative net income at the end of the experiment.12 Conse-

quently, the net income of member i was equal to 6 21 16 6 015 =π = + −∑i j ij e e

points in every round.

As the baseline treatment (as well as the training) did not exhibit any material or imma-

terial tournament incentives, the structure of the game reduces to a 1N -problem of free

riding in teams. In the baseline treatment, the pareto optimum for the team is 30=poie

for all team members 6,...,1=i , but individual rationality yields the free riding effort of

5=frie for all 6,...,1=i .

In the premium treatment, the team member with the highest contribution received an

additional premium of 3 points. If there were more than one player contributing the

highest amount, the premium was equally shared among them. At the end of every

round, the team members were informed about the highest amount and about the num-

ber of team members who contributed this amount. In the photo treatment, instead of

paying the monetary premium, the photo of the highest contributor was shown to all

team members together with the highest contribution. In case there were more than one

participant contributing this amount, all of their photos were displayed. Thus, all team

members were informed both about the contribution and the identity of the highest con-

tributor. Consequently, we can compare the results of our photo treatment to those of

the information+photo treatment of Andreoni and Petrie (2004b). Finally, the pre- 12 Indeed, none of the participants realized a negative net income at the end of the experiment.

7

mium+photo treatment combined the material and immaterial premia of the other treat-

ments. In all sessions, the baseline treatment was the first treatment, and the pre-

mium+photo treatment was the last. In order to avoid that the incentive effects of the

premium and the photo can be confounded with ordering effects, we varied the treat-

ment ordering of these two treatments such that, in four of the eight sessions, the pre-

mium treatment was conducted second, and in the other sessions, the photo treatment

was conducted as second treatment.

The instructions informed the participants about the structure of the experiment and the

payoff consequences of their decisions.13 They appeared on computer screens and were

simultaneously read aloud. At the end of the instructions, the participants received a

summary of all equations and a table containing the costs for all possible ie . After

every round, the participants were informed about the team output, their shares in the

team output, their costs and their net income. Furthermore, they could see the results of

all preceding rounds. At the end of every treatment, they were told that the groups

would be broken up and randomly recomposed for the next treatment. Before the new

treatment started, the new instructions were communicated to the participants.

We use a 1N -problem instead of a (standard) public good game in our experiment as it

avoids corner solutions. In a standard public good game, the individually rational solu-

tion is a contribution of 0 to the public good while the pareto-optimal (cooperative) so-

lution is to contribute the maximum possible. Thus, whenever someone contributes

nothing at all or, at the contrary, the maximum possible under certain treatment condi-

tions, this cannot be unambiguously traced back to the negative or positive incentive

effects of the extrinsic incentive device but could simply be due to his general coopera-

tive or noncooperative attitude. This is particularly important for the photo as immate-

rial incentive device as we will see later. However, in the 1N -problem of our experi-

ment, the individually rational solution is 5 0= >frie and the pareto-optimal coopera-

tive contribution to the team output is max30 40= < =poie e . Thus, if somebody per-

ceived the photo as embarrassing and did not want it to be shown, he could decrease his

contribution even below the individually rational level and thus incur personal costs in

order to avoid it. This would unambiguously reveal a negative incentive effect of the

photo for this player whereas, in a public good game, it could be confounded with an

individually rational strategy. Vice versa, if the possibility of becoming EOM and hav-

ing the photo shown to the whole team yielded positive incentives for all participants

we would see increases in the contributions even if we had an entirely cooperative team 13 The instructions to the experiment are available from the authors upon request.

8

whose members all contributed the pareto-optimal level to the team output without ex-

trinsic incentives. Thus, the 1N -structure helps to ensure that positive and negative in-

centive effects of the extrinsic incentive devices are not confounded with generally co-

operative or noncooperative behavior of the players.

In the three treatments following the baseline treatment, there is no pure strategy Nash

equilibrium – provided that the photo is utility-relevant for more than one player in the

team (e.g., Bull, Schotter and Weigelt (1987), Dickinson and Isaac (1998)). Thus, abso-

lute contribution levels are difficult to predict in these treatments. However, as there is

broad empirical and experimental evidence for the positive incentive effects of mone-

tary premia, it is straightforward to expect a positive effect of the premium on the par-

ticipants' contributing behavior. If all players were rational they would play mixed

strategies with average contributions above 5.

As we have already mentioned, the expectations for the effect of the photo on the par-

ticipants' contributing behavior are not as unambiguous as for the monetary premium. If

the pride or the prestige of being the highest contributor is the primary motive for in-

creased cooperation in prior experiments (‘the pride motive’), we should expect signifi-

cantly higher contributions in the photo treatment compared to the baseline treatment

and in the premium+photo treatment compared to the premium treatment. In contrast,

observing no significant effect or even significantly lower contributions makes the (po-

tential) shame of being identified as a free rider (‘the shame motive’) more likely as a

cause for increased cooperation in comparable prior experiments.

Moreover, the fact that the photo of the highest contributor is shown to the whole team

might not represent a reward for every participant but may be perceived as embarrassing

by some of them. If these players are cooperative in the sense that they generally tend to

make high contributions to the team output, the conditions in the photo treatment could

have a negative effect on their contributions as these players could reduce their high

contributions in order to avoid the photo. However, if people self-select in reality, it is

unlikely that these players would join teams with comparable EOM tournaments. In

order to account for these potentially negative effects of the photo, four of the eight ses-

sions conducted were self selection sessions. They differed from the reference sessions

insofar as the self selection participants could opt at the beginning of the photo and the

premium+photo treatment whether they would like to have their photo shown or re-

placed by a white space in case they contributed most to the team output. Consequently,

these sessions are supposed to eliminate any negative incentive effect from the photo for

9

players perceiving it as embarrassing. Thus, although the predicted effect of the photo in

the reference group is not unambiguous, we can expect a strictly positive effect of the

photo in the self selection sessions as only the positive incentive effect for some of the

participants should prevail.

The experiment was run with 144 students and employees of the University of X. All

sessions lasted about 2 hours. All participants were paid a show-up fee of 10 EUR.

Their additional variable fee for the experiment amounted to 21.48 EUR on average,

with a minimum of 11.80 EUR and a maximum of 30.63 EUR.

3 Experimental results

3.1 Material and immaterial incentive effects

Table 1 presents the mean contributions to the team output in all four treatments in the

reference and the self selection group. As can be seen from the table, the mean baseline

contributions in the reference and the self selection group are very similar and not sig-

nificantly different from each other (Mann-Whitney U, 0.6>p ). For our whole sample,

the mean contribution in the baseline treatment amounts to 8.62 which is lower than the

contributions in the comparable experiment of Nalbantian and Schotter (1997). Their

mean contribution would correspond to about 10.4 when scaled to our model.14

We will first analyze the small monetary premium's incentive effects. Therefore, Figure

1 displays the average contributions to the team output in the reference and the self se-

lection group in all rounds. It can be seen that, for both groups, the premium clearly

exhibits positive incentives to increase their contributions to the team output. In the ref-

erence group, the contributions in the premium treatment are larger than in the baseline

treatment in every round. In the self selection group, this is the case in every round ex-

cept the last. Moreover, the figure shows that, in both groups, the contributions in the

premium+photo treatment are nearly always larger than in the photo treatment. The re-

sults of the statistical tests displayed in Table 1 indicate that all these differences in con-

tributions are significant at least at a 5% level.15 Thus, reference and self selection group

do not differ with respect to the positive incentive effect from the monetary premium.

14 This difference between the two experiments might be due to the 9 training rounds our participants

performed before the payoff rounds started. In the experiment of Nalbantian and Schotter (1997), the average contribution for the last ten rounds (rounds 16-25) amounts to about 8.4 (when scaled) which is much closer to the mean contribution in our baseline treatment.

15 As statistical tests we used two-tailed Wilcoxon rank-sum tests. In order to avoid problems of statisti-cal dependence, we used individual averages across rounds as units of observation in every treatment (e.g. participant i's contribution in the premium treatment was measured as 71

8τ+

=τ= ∑prem

i itte e and τ is

10

However, comparing the participants' contributions to the team output does not take into

account that the monetary premium is not costless (as the immaterial incentives via the

photo). Thus, in order to consider the costs of the premium for the team, Table 2 dis-

plays the participants' net earnings in case we had subtracted 0.5 (the premium of 3 di-

vided by 6) from every participant's net income in the premium and the premium+photo

treatment. The table reveals that the net earnings in the premium treatment are always

significantly larger than in the baseline and the photo treatment and that those in the

premium+photo treatment are always larger than in the photo treatment. Although the

latter difference is not statistically significant in the self selection group, we conclude:

Result 1: The monetary premium yields positive incentives to increase contributions to

the team output. Moreover, it can always be self-financed by the corresponding increase

in contributions and subjects' earnings net of premium costs would still increase.

We will now turn to an analysis of the photo treatments and the incentives the photo

provided for the participants to increase their contributions to the team output. First, we

will report results on the reference group in which the participants could not choose

whether their photos would be displayed or not in case they contributed the most to the

team output. As we explained in section 2, if participants feel embarrassed by this, they

may reduce their contributions in this treatment in order to avoid the photo.

Indeed, Figure 1 shows that, in this group, the mean contributions to the team output in

the photo treatment are lower than in the baseline treatment in 5 out of 8 rounds and

contributions in the premium+photo treatment are lower than in the premium treatment

in every round. Moreover, Table 1 reveals that in both cases the effect of the photo on

participants' contributions is significantly negative at least at a 5% level. This leads us to

the following result:

Result 2a: Showing the photo of the team member contributing the most to the team

output has a negative incentive effect on participants' contributing behavior when par-

ticipants cannot opt to have their photo shown or not.

These findings from the reference group directly lead us to the analysis of the self selec-

tion group. Recall that we conducted these sessions to control for potentially negative

incentive effects from the photo for players feeling embarrassed by the photo. In the self

selection sessions, every player could choose at the beginning of the photo and the pre-

the first premium round). Thus, in both groups, we have 72 observations per treatment; one for each participant.

11

mium+photo treatment whether he wanted his photo to be displayed in case of contrib-

uting most or whether he would like to have it replaced by a white space. As this option

should eliminate any negative incentive effect from the photo for players feeling embar-

rassed by the photo and only the positive incentive effect for some of the participants

should prevail, we predicted a strictly positive effect of the photo on the contributions to

the team output.

However, as Figure 1 reveals, although the contributions in the photo treatment now

oscillate around those in the baseline treatment and the contributions in the pre-

mium+photo treatment are no longer as far below the premium contributions as in the

reference group and even slightly higher in rounds 6 and 8, a positive incentive effect

from the photo is still missing. Table 1 reveals that the difference between baseline and

photo treatment is now insignificant and although the contributions in the premium+

photo treatment are significantly smaller than in the premium treatment, the decrease in

contributions is much smaller than in the reference group.16 To summarize:

Result 2b: The possibility to choose whether the photo should be shown or not miti-

gates the negative incentive effect of the photo. However, even under this option, the

photo has no positive incentive effect.

Results 2a and b, of course, reject the hypothesis of a positive incentive effect of the

photo. Particularly, the significant decrease in contributions from the premium to the

premium+photo treatment in the self selection group is quite surprising. One explana-

tion for this result might be that it is due to the treatment ordering, as the premium+

photo treatment was always conducted as the fourth treatment and there might exist a

negative time effect over treatments. As we explained above, our experimental design

controls for ordering effects in the premium treatment and the photo treatment. How-

ever, despite the negative time effect within each treatment which is displayed in Figure

1, we do not find evidence for systematic ordering effects. In particular, the data from

the premium and the photo treatment in the self selection group do not provide any sup-

port for the hypothesis of a generally negative time effect over treatments.17

These findings on the photo's incentive effects contrast sharply the findings of prior

experiments on increased cooperation when social distance between the players is re- 16 Though, the changes in contributions from the premium to the premium+photo treatment in the two

groups are not significantly different from each other. 17 The mean difference between the photo and the baseline treatment was -0.21 (-0.23) when the photo

treatment was conducted second (third), and the difference between the premium and the baseline treatment was 1.23 (1.08) when the premium treatment was conducted second (third). Similarly, the regressions we ran do not provide any support for a generally negative time effect.

12

duced by identifying the partners of the game.18 In particular, Andreoni and Petrie

(2004b) use the same way of identification and obtain an increase of 59% in the contri-

butions to a public good when the photos of the team members together with their con-

tributions are displayed. We attribute this substantial deviation from their findings to the

difference in the experimental design and thus to the difference between forced identifi-

cation on the one side and partial as well as voluntary identification on the other. While,

in Andreoni and Petrie (2004b), all team members and their contributions to the public

good were always identified, in our experiment, only the photos of the participants having

contributed most were transmitted to the others.19 If the pride motive of being the highest

contributor had been the driving force for increased cooperation in social dilemmas with

identification of the players, the positive incentive effect of the photo would have per-

sisted in our experiment. As this is obviously not the case, it becomes more likely that the

difference in results can be traced back to the different consequences for (potential) free

riders.20 While they can be identified as such in experiments involving forced identifica-

tion, they remain anonymous in our setting. This suggests that the results of Andreoni and

Petrie (2004b) should be interpreted with care: while they seem extremely favorable for the

identification effect in team production settings or social dilemmas at a first glance, our

results indicate that this effect seems to be a lot smaller when free riders can hide in the

mass as the pride motive is not very strong across our sample. Thus, Results 2a and b in

combination with the results of prior experiments allow us to state the following result:

Result 3: It is not pride and prestige that drive experimental results of increased coop-

eration in social dilemmas with identification, it is the fear and shame of being identi-

fied as a free rider.

This result, of course, is also directly related to the incentive effects from EOM tourna-

ments. Result 3 suggests that, unless the EOM tournament helps to identify free riders

in the team production, the incentive effect from it will be relatively low. 21

18 As an exception, Dufwenberg and Muren (2001) find decreasing donations in a dictator game when

proposers receive their payment during a lecture on stage instead of payment in private. 19 Additionally, in our experiment the players were only informed about the contribution of the EOM

and not about the contributions of all team members; see Sell and Wilson (1991) regarding this point. However, Andreoni and Petrie (2004b) find that transmitting only the information about the team members contributions does not significantly increase the cooperation.

20 Though, the results of Rehu, Lusk and Wolf (2004) provide an alternative explanation for the differen-ces observed. Their survey indicates that German employees find EOM rewards non-motivating in contrast to employees in the US. This suggests that the differences between our German sample and the US-sample of Andreoni and Petrie (2004b) might also be due to cultural factors. However, the exact nature of the EOM reward was not specified in the survey and, thus, this study cannot ensure that ‘EOM reward’ had the same meaning for all respondents, in contrast to the controlled conditions in the experiments.

21 For a discussion of the differences between our experimental design and EOM tournaments in reality see section 4.

13

3.2 Perceptions of the photo

As we explained above, the incentive effect of the photo might differ according to the

participants' perception of the photo. Moreover, as we do not find any positive incentive

effect from the photo in either group as a whole, differentiating between participants

that indeed felt rewarded when the photo was shown to the group and those participants

who felt embarrassed can help to gain further insights into the photo's role for incentive

provision. In particular, we would expect at least the contributions of the participants

feeling rewarded to increase in the corresponding treatments.

Subsequently to the experiment, we asked the participants to rate the fact that their

photo was shown in case they contributed most, as rewarding, neutral or embarrassing.

The analysis of the answers shows that the majority of the participants indicated that

they felt neutral with regard to the photo. For the whole sample, 72% of the participants

gave this answer whereas the distributions of the reference group (75% of neutral-

participants) and the self selection group (69% of neutral-participants) do not differ sig-

nificantly ( 2χ , p 0.1> ). 12% of all participants perceived the photo as rewarding and

16% as embarrassing.22

The average number of times the different participants won the EOM tournament in the

photo treatment is in line with our expectations from the perception of the photo. Those

who felt rewarded won the tournament on average 3.35 times, the neutral group 1.61

times and those who felt embarrassed 1.35 times.23 This difference between the number

of EOM-victories is smaller for the premium+photo treatment: participants perceiving

the photo as reward now won the tournament 2.53 times, those perceiving it as neutral

1.30 times and finally those perceiving it as embarrassing 1.74 times.

Table 3 displays the average contribution to the team output for each of the three types

in all four treatments. As can be seen from the table, in contrast to our expectations, we

do not find any increase in the contributions of the reward-participants in the photo rela-

tive to the baseline treatment and in the premium+photo relative to the premium treat-

ment. Thus, even for these participants, the photo obviously does not represent a moti-

vator to increase contributions to the team output. Instead, the table reveals that the con-

tributions of the participants feeling rewarded by the photo are larger than those of the

22 Note that we pooled answers 1 (strong reward) and 2 (reward) as rewarding and answers 4 (embarras-

sing) and 5 (very embarrassing) as embarrassing. 23 The total number of EOMs is larger than 192 (8 sessions x 3 teams x 8 rounds) since it was possible

that two or more players simultaneously contributed the highest amount to the team output in a round and that, consequently, there was more than one EOM in this round.

14

other participants in all four treatments. Particularly, the results of the self selection

group are very strong as the statistical tests reveal that these differences are always sig-

nificant.24 Results in the reference group are somewhat weaker as the differences are

only significant in 4 out of 8 cases. However, this should be interpreted with care as the

number of participants in the reference group that indicated to perceive the photo as

rewarding was only 6. In both groups, differences between the neutral- and the embar-

rassing-players are insignificant.

This result is surprising for the following reason: if the three groups of participants were

homogenous and only differed with respect to their perceptions of the photo (and thus

with respect to its incentive effects), we should not find any significant differences be-

tween the contributions of all players in the baseline and the premium treatment. Only

the contributions in the photo and the premium+photo treatment would be supposed to

differ as the photo would represent an incentive for some players to increase their con-

tributions and for others to decrease them. However, as has been shown, the contribu-

tions of the participants do not only differ in these two treatments but systematically

across all treatments, and, particularly, the differences already exist in the baseline

treatment where the participants had no information about future treatments. This sug-

gests that the three types of players are not homogenous with respect to their general

contributing behavior but exhibit systematic differences which go beyond the incentive

effects of the photo.

Furthermore, the conclusion about the role of the photo we have to draw differs from

what we initially conjectured. Instead of the photo being a strong positive incentive ex

ante for some participants making them increase their contributions to the team output,

some cooperative players seem to perceive the photo as an immaterial reward ex post

for contributing a lot to the team output.

As a robustness check for this result, we also conducted a regression analysis. The de-

pendent variable is an individual's contribution to the team output in a given round, and

the explanatory variables are dummy variables with respect to the individuals' percep-

tion of the photo (rewarding yes/no, embarrassing yes/no) interacted with treatment

dummies in order to capture potentially different contributing behavior in different

treatments. Moreover, we included a round variable to model time effects and group

dummies to control for fixed group effects (e.g., Fehr and Gächter (2000), Sefton,

24 We used two-tailed Mann-Whitney U-tests with individual averages across rounds as units of observa-

tion. Thus, in every group, we again have 72 observations per treatment.

15

Shupp and Walker (2005). Table 4 contains the model and the results of the Tobit regres-

sions we ran.25 The results from the table support the evidence from the univariate tests

in Table 3. For both groups, the coefficients of all reward variables are positive and highly

significant; thus, participants perceiving the photo as rewarding contribute significantly

more in all treatments than the neutral group. The coefficients of the embarrassing vari-

ables are all insignificant in the reference group, but in the self selection group, they are

all negative and significant except if interacted with the premium+photo dummy. Thus,

although Table 3 does not reveal any significant differences in the contributions of the

neutral- and the embarrassing-participants, these results suggest that the contributions of

the latter are shifted towards free-riding in the self selection group. To summarize:

Result 4: Photos do not represent positive incentives to increase contributions to the

team output ex ante, but are perceived as rewards by some cooperative players ex post.

Consequently, although our experiment clearly does not support the hypothesis of EOM

tournaments as a strong motivator to increase contributions to the team output, EOM

tournaments seem to contribute to the work contentment of cooperative players which

might be beneficial for firms at the long run.

In the following, we will explore two potential explanations for this result. First, one

might argue that the participants feeling rewarded when their photo is displayed simply

have a strong preference for winning a tournament regardless of its price. This is only

partly compatible with our results. It is admittedly supported by the increase in their

contributions in the premium treatment but contradicted by the findings from the base-

line treatment without extrinsic incentives.

Another explanation comes from the psychological literature. According to the cogni-

tive dissonance theory (e.g., Brehm (1956), Festinger and Carlsmith (1959)), people do

not like cognitive dissonance and try to reduce it.26 Cognitive dissonance occurs when-

ever a person's behavior and her beliefs are in conflict. With respect to our experiment,

this means that the participants' evaluation of the photo could be driven by the results of

the corresponding treatments. In particular, even if they do not respond to the photo by

consciously varying their contributions to the team output, cooperative players contrib-

ute larger amounts than other players. Thus, they are automatically more likely to win

25 OLS regressions yield virtually identical results. 26 For the integration of the cognitive dissonance theory into economic models see, e.g., Akerlof and

Dickens (1982) and Rabin (1994).

16

the EOM tournament and to have their photo displayed.27 In contrast, free-riders are less

likely to win the tournament if they do not respond to the photo by varying their contri-

butions. Consistent with this, the average number of EOM victories of the reward-

participants in both photo treatments is much larger than the number of EOM victories

of the other participants28, although Table 3 reveals that there is no increase in their con-

tributions. Evidence for the embarrassing group is weaker but the data on EOM victo-

ries in the photo treatment and the contributing behavior also support the hypothesis that

the photo evaluation could be driven by a person's need to reduce cognitive dissonance.

4 Discussion

The laboratory experiment we performed was designed to replicate the EOM tourna-

ment used in many firms to elicit higher team effort and team production. This was

done by showing the participants the photo of the team member having contributed

most to the team output in the preceding round. The results of prior experiments with

identification of the game partners are very promising as the decrease in social distance

tends to increase cooperative behaviour and team production. However, our experiment

differs from prior experiments insofar as there is no forced identification but the partici-

pants voluntarily identify themselves by contributing high amounts to the team produc-

tion. Thus, free riders that contribute little or nothing to the team output cannot be iden-

tified as such and remain anonymous.

With respect to the design of incentive systems including both material and immaterial

extrinsic incentives, the results of this study have several important implications. First,

the results support the well-known positive effects of monetary tournament incentives.

Second, they imply that a tournament with purely immaterial extrinsic incentives like

the EOM tournament is unlikely to have significant positive incentive effects as long as

the EOM tournament only relies on the pride motive of becoming EOM; our results

clearly do not show any positive incentive effect from the photo to increase the contri-

butions to the team output. However, Result 3 which relates our results to prior experi-

mental findings clearly supports a motivational effect of the `shame' to be a low con-

tributor in an EOM tournament. This implies that the effectiveness of an EOM tourna-

ment critically depends on the work environment, like e.g. the transparency of the team

input, the group size, or repetitions of EOM tournament. We will discuss this below.

Finally, Result 4 and its potential explanation for the link between a participant's per- 27 Moreover, whenever the contribution is larger than the individually rational contribution, the partici-

pants contributing most in the photo treatment receives the lowest payoff of the group. 28 All of the reward-players in the self selection group chose the option to have their photo displayed.

17

ception of the photo and his cooperativeness in team production point at a more general

question, which is relevant for the design of any incentive system including immaterial

extrinsic incentives, in firms as well as e.g. for donations: is there a more general corre-

spondence between a person's economic decisions and her concern with her public im-

age or her preferences for a certain social role? Further research could provide further

clues and constituent characteristics with respect to this question.

As indicated, with respect to the incentive effect of EOM tournaments in reality, our

experimental results are preliminary. First, our experiment introduced partial and volun-

tary identification in order to exclude the shame motive for increased contributions to

the team output. However, contingent on the concrete design of an EOM tournament

and particularly the group size, the shame motive might also play a role in motivating

increased effort as the (social) pressure for free riders to become EOM could increase

from month to month when the identity of all team members is well known. Neverthe-

less, it is unlikely that work team members in reality feel the same pressure or shame

when their photo is not displayed at the EOM plaque for several months as when their

free riding effort is communicated to the other team members in every period.

Second, even if there is no direct financial reward in reality for becoming EOM there

might be an indirect financial compensation via the increased probability of being pro-

moted at some future point in time or via an increased market value and better outside

options for the employee. Thus, EOM tournaments might simply represent tournaments

for future payments. This is equivalent to arguing that real life EOM tournaments are

more likely to correspond to the premium+photo treatment in our experiment than to the

photo treatment without monetary premium and our results have shown that, not sur-

prisingly, adding a (small) monetary premium to the photo increases the effort levels.

However, if this were the case in reality, the driving force behind the effort increase in

an EOM tournament would be the (direct or indirect) monetary compensation and not

the immaterial extrinsic incentives from the photo that we examine.

Third, the recognition from the other team members might be larger in reality than it

was in our experiment as the photo was only displayed on the computer screens until the

next round which represents a considerable difference to the usual period of time in re-

ality and, additionally, the participants of our experiment did not get in personal contact.

Particularly the effects of the latter could be tested in a further experiment with face-to-

face discussions before and after every round.

18

Finally, the incentives from an EOM tournament in reality might also be stronger than

in our experimental setting when the team output is more important for the team mem-

bers than just as a basis for their (direct) compensation. This could be the case when a

high work team effort helps to safeguard the jobs of the whole team or to achieve some

higher goal. However, in this case, the increased recognition for being EOM has to be

carefully separated from the generally increasing incentives for the whole team and has

to add something beyond these. Therefore, in order to closer examine the incentive ef-

fect of immaterial extrinsic incentives, further research should try to close these gaps

between real world EOM tournaments and the existing experiments.

19

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21

Figure 1: Mean contributions to the team output in the reference and the self selection group.

Self selection group

4

6

8

10

12

14

1 2 3 4 5 6 7 8

e

baseline premium photo prem.+photo

Reference group

4

6

8

10

12

14

1 2 3 4 5 6 7 8

e

baseline premium photo prem.+photo

22

Table 1: Mean contributions to the team output in the reference and the self selection group. Two-tailed Wilcoxon rank-sum tests; units of observation: individual averages per treatment. * ** , ** and * denote significance at the 1%, 5% and 10% level.

Panel 1: reference group baseline premium photo prem.+photo Mean contribution 8.6024 10.4861 8.0590 8.8490 treatment/baseline 1.8837 -0.5434 0.2465 ***p 0.001< **p 0.025= p 0.399= treatment/premium -2.2471 -1.6372 ***p 0.001< ***p 0.001< treatment/photo 0.7900 **p 0.020= Panel 2: self selection group baseline premium photo prem.+photo Mean contribution 8.6424 9.7951 8.4253 9.1007 treatment/baseline 1.1527 -0.2171 0.4583 **p 0.012= p 0.111= p 0.333= treatment/premium -1.3698 -0.6944 ***p 0.001< ***p 0.008= treatment/photo 0.6754 **p 0.049=

Table 2: Participants’ net income adjusted by the cost of the premium. Two-tailed Wil-coxon rank-sum tests; units of observation: individual averages per treatment. ** * , ** and * denote significance at the 1%, 5% and 10% level.

Panel 1: reference group baseline premium photo premium+photo mean 11.5957 12.2992 11.4110 11.8804 bl./prem. prem./photo photo/prem.+photo significance **p 0.020= ***p 0.008= *p 0.054= Panel 2: self selection group baseline premium photo premium+photo mean 11.7467 12.1730 11.6733 12.0495 bl./prem. prem./photo photo/prem.+photo significance **p 0.043= **p 0.041= p 0.207=

23

Table 3: Contributions to the team output contingent on the perception of the immate-rial photo incentive. Two-tailed Mann-Whitney U-tests; units of observation: individual averages per treatment. * ** , ** and * denote significance at the 1%, 5% and 10% level.

Panel 1: reference group reward neutral embarrassing baseline 11.3958 8.2384 8.8438 premium 16.1458 9.6366 11.4792 photo 10.2500 7.8380 7.9583 prem.+photo 12.5208 8.4792 8.6771 signif. rew./neut. signif. rew./emb. signif. neut./emb. baseline *p 0.098= p 0.325= p 1.000= premium **p 0.014= p 0.134= p 0.228=

photo p 0.246= p 0.325= p 0.881= prem.+photo **p 0.037= *p 0.082= p 0.527= Panel 2: self selection group reward neutral embarrassing baseline 10.9545 8.4775 7.0795 premium 13.0568 9.4550 8.0795 photo 10.4432 8.3400 6.7955 prem.+photo 12.6932 8.7725 7.2273 signif. rew./neut. signif. rew./emb. signif. neut./emb. baseline *p 0.052= ***p 0.007= p 0.260= premium **p 0.035= **p 0.039= p 0.393= photo *p 0.084= **p 0.023= p 0.150= prem.+photo **p 0.021= **p 0.014= p 0.297=

24

Table 4: Influence of the photo perception on contributions to team output. Standard errors are in parentheses. Tobit regressions, left censoring value: 0, right censoring value: 40. ** * , ** and * denote significance at the 1%, 5% and 10% level.

Dependent variable: Contribution to the team output Independent variables reference selfselection Constant ***12.4326 ***12.0223 (1.2135) (1.0754) ROUND ***.6938− ***.3514− (.0657) (.0631) Reward x baseline ***3.7924 ***2.6058 (1.1267) (.9051) Reward x premium ***4.8439 ***3.4101 (1.1867) (.9213) Reward x photo **2.6423 ***2.3484 (1.1856) (.8807) Reward x prem.+photo ***4.9352 ***3.7616 (1.1521) (.9217) Embarr. x baseline 0.8702 **1.8970− (.9038) (.8342) Embarr. x premium 1.3475 **1.8401− (.8590) (.8685) Embarr. x photo .1557− **2.3562− (.8683) (.9234) Embarr. x prem.+photo .8670 .6621− (.8663) (.9214) Fixed group effects yes yes N 2304 2304 R2 .18 .14 Adj. R2 .15 .12