Awards increase in popularity in the corporate sector, where managers consider innovative human resource practices such as awards to be essential for firm competitiveness. The prevalence and popularity of awards in the corporate sector suggest that awards fulfill important functions in principal-agent relationships. However, what exactly are awards, and in what respects do they differ from other kinds of incentives studied in the economic literature? In award schemes, an agent is given a symbolic reward for good performance in combination with positive performance feedback and social recognition from superiors and peers. Although awards contain features of other motivators, such as performance bonuses, pure feedback, gifts, praise, and tournament prizes, they can be clearly distinguished from these other motivators. To date, there is very little evidence on the effect of awards on performance.
This paper identifies the effect of receiving an award on subsequent employee performance in the call center of a Fortune 500 financial services provider. Our data set is unique in that the awards studied are not driven by the outcome measure that we look at. Specifically, the awards are directed towards valuable activities such as substituting for colleagues or making improvement suggestions, which are uncorrelated with the variation of the recorded performance in core call center activities such as the number of calls answered.
The effect of awards on subsequent performance is theoretically ambiguous a priori. On the one hand, awards provide no direct incentives to increase core performance. On the other hand, performance might decrease, for example, because award winners rest on their laurels. Alternatively, performance might increase sustainably when the award intensifies identity in the form of workers' self-images as job holders of the award-winning employees with the company. The heightened attention resting on award winners during the month of the award could also induce a temporary improvement of call center performance that is driven by a desire to live up to the honour.
Our analysis yields four main findings. First, we report a positive spillover effect from the rewarded job dimension to another one that does not qualify for an award: the receipt of an award for social activities like volunteering or making improvement suggestions causes a statistically significant and sizeable increase in core call center performance. Second, we document an ex post effect of rewards on subsequent performance. Hence, it is not sufficient to only look at ex ante incentive effects when assessing the overall impact of a reward. Third, we document the motivating power of non‐pecuniary rewards. Fourth, the data allow us to distinguish between different hypotheses that could theoretically explain the performance increase. The analysis suggests that the effect is driven by those individuals who previously performed poorly and is reflected most clearly in dimensions of the job that are hard to observe. This implies that a desire to live up to the honour or affective reactions rather than more sustainable mechanisms such as a shift in employee identity is at work. Finally, we can show that awards exhibit decreasing marginal impacts: the spillover effect is substantially larger when agents win their first award than when they win further awards.
While the form the non-material reward takes might be specific to this setting, the essence of the results is of general interest. The fact that awards affect subsequent performance in a job dimension that does not qualify for it indicates that social incentives might, more generally, be important for solving agency problems. Awards may be of particular value in situations prone to multi-tasking or motivation crowding. This has important implications for how workers respond to the provision of non-material work incentives and sheds light on how compensation schemes can be enriched with non-material components like awards.