To Find the Best Incentives for Employees, Start with a Simple A/B Test

Discovering the most effective incentives for your team can be a game-changer. A simple A/B test could be the key to unlocking this potential. Let's delve into how this method can help identify what truly motivates your employees.

Simple experiments can lead to big productivity gains

Even a single A/B test can provide a surprising amount of information about how employees will respond to a range of incentive strategies

• Employers are understandably reluctant to experiment with incentive schemes because they don’t want to risk upsetting employees
• George Georgiadis and Michael Powell, both associate professors of strategy at the Kellogg School of Management, develop a model that shows how organizations can use this data to structuring performance incentives

Benefits of A/B Testing

It doesn’t require that the employer understand in advance anything about their employees’ preferences

• The researchers’ article includes all of the steps an organization would need to take to generate an incentive scheme that is close to optimal
• And it even has a final benefit: familiarity

The Right Incentives

One of the only ways for managers to know whether there is a better incentive scheme for their organization is by modifying their existing scheme for a limited period of time-perhaps just in one part of the organization-and then seeing what actually happens to performance

• Employers can use the data from employees’ distribution of responses to predict how employee productivity-and by extension, the employer’s profits-will change given any change in the contract

Put to the Test

To put the accuracy of their model to the test using productivity data generated by real participants, the researchers turned to previously published data from participants who completed a simple online task under six different payment schemes.

• They found that, on average, using data from any two contracts would enable an employer to construct a third contract that obtained just over two-thirds of the gains that it would obtain if it could design a truly optimal contract.

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