RESPONSIBLE ENTREPRENEURSHIP VISION DEVELOPMENT AND ETHICS

158 RESPONSIBLE ENTREPRENEURSHIP
for several unanticipated effects that could have hidden costs for an organization. Illustratively,
disadvantages of PRP include the possibility of turning employees’ focus on those activities
directly linked to financial incentives (Reilly, 2003), concentrating on ends rather than
means or even lead them to engage in unethical behaviour (Glassman et al., 2010). As Prendergast,
(1999) points out, non-observability of all aspects of worker behavior leads to “centrality”
or “leniency” bias which gives rise to rent-seeking behavior by workers who may
receive a favourable treatment by their bosses. According to Courty, Heinrich, et al. (2005)
a problem related to the multi-tasking argument deals with the issue of gaming or cheating.
Typical examples are outright manipulation of results, cream-skimming, i.e. the manipulative
selection of clients to improve program effects (Heckman, Heinrich, et al. 1997) In the
public sector, an additional problem that could arise is that employees have to deal with multiple
principals, a common feature of public service hierarchies. If different principals value
different outputs, have different information and have little ability or incentive to coordinate,
separately designed incentive schemes are likely to fail (Dixit 1999).
The literature on gift exchange has also contributed to the debate, showing that a reliable
worker would reciprocate to a generous employer in a way which does not require the performance-contingent,
ex ante establishment of compensating incentives rules like PR contracts
(Akerlof, 1982). In the Akerlof model, higher pay always leads to higher effort (though firms
clearly would not wish to pay for unbounded effort) and if worker effort depends on a reference
wage, then it may be logical for firms to pay a wage above that level to obtain extra effort.
However standard economic theory fails to account for the fact that extrinsic incentives
may “crowd out” intrinsic ones, yielding the contrary effects to the pretended increased motivation
and higher effort (Frey & Jensen, 2001; Schmidt et al., 2011). Behavioural economists
recognized that extrinsic incentives (rewards) positively affect individuals only in the short
run, but in the long run decrease motivation (Bénabou & Tirole, 2003). They explain that
extrinsic motivation has a limited impact on current performance and reduces the agent’s motivation
to undertake similar tasks in the future. Their idea is as follows: once a reward is offered,
it will be sought by the worker every time the task has to be repeated. Whereas when rewards
are discretionary, they are likely to increase intrinsic motivation and thus be of more benefit
to the individual. Baron & Kreps (1999) conclude in their article that “there is no doubt
that the benefits [piece-rate systems or pay-for-performance incentive devices] can be considerably
compromised when the systems undermine workers’ intrinsic motivation.
A variety of psychological theories have been used to designate the role of pay in motivation.
Nevertheless, expert opinions for the effectiveness of pay as a motivator have historically
been divided. Motivational theories can be classified in two groups, according to the
importance they assign to pay as a motivator (Rynes, et al., 2005; Glassman, et al., 2010).
The first group of theories, including Maslow’s need hierarchy theory, Herzberg’s motivation-hygiene
theory and Deci and Ryan’s (2000) self-determination theory, questions the contribution
of monetary rewards to performance enhancement. It mainly emphasizes internal
motives and intrinsic rewards, such as recognition, social relations, self-actualization, job
enrichment or autonomy. It asserts that money helps employees to meet only ‘basic needs’
and prevents dissatisfaction; however, pay cannot promote satisfaction. Hence, the motivational
effect of financial incentives may be not only limited, but also negative (Rynes, et al.,
2005; Weibel et al., 2010; Glassman, et al., 2010).
On the contrary, the second group of theories, including reinforcement theory, expectancy
theory, equity theory or goal setting theory, mainly concentrates on the process by which