OB Research Seminar - Tiffany Kreutschy, HEC Lausanne

Past research has established that charismatic leadership tactics can be a powerful motivator. In some settings, the increase in work output induced by a charismatic speech is comparable in size to the positive effect of high-powered financial incentives. But what about settings in which incentives backfire? In a between-subject laboratory experiment, we set up a real-effort work environment in which participants can execute a task in two ways: they can either select an easy version of the task, which takes little effort but also produces little value for the principal, or they can go for the harder version which is more costly to perform, but substantially increases the benefit for the principal. When compensation is a fixed wage and the motivation speech is “standard”, we observe that participants mostly focus on the socially optimal, hard version of the task, but the general effort level is not particularly high. Exposing participants to financial incentives motivates participants to work much harder, but although the effort level increases substantially, the revenue created for the principal decreases drastically. The reason for this counterproductive effect of performance pay is that incentivized workers concentrate almost exclusively on the inefficient, easy version of the task. Combining the fixed wage with a charismatic motivation speech, in contrast, increases both the effort level and the revenue for the principal. The positive effect on the effort level is smaller than the one of incentives, but the charismatic speech makes participants work harder on the difficult task. A combination of incentives and a charismatic speech leads to similar outcomes as using incentives alone. These results establish novel insights: On one hand, we show that charisma can be an effective motivation tool even in situations where incentives fail. On the other hand, however, charisma in our setting does not shield participants from the corrupting effects of incentives when the two tools are combined in our setting.