The Effects of Reward Nature and Reward Contingency on Employee Voluntary Training

Abstract

Despite firms investing billions of dollars in voluntary training, employees’ skills still fall behind what firms need. Therefore, managers must motivate employees to allocate more effort toward voluntary training. In a multi-task setting where effort allocated to both production and voluntary training can increase employee performance, I examine how two attributes of performance-based rewards – reward nature (hedonic vs. utilitarian) and reward contingency (goal-based vs. piece-rate) – affect employee total effort, voluntary training effort proportion, and performance. Using a lab experiment, I find that the effect of hedonic (vs. utilitarian) reward nature on employee total effort is more positive when the reward is goal-based than piece-rate; the effect of hedonic (vs. utilitarian) reward nature on employee voluntary training effort proportion is more negative when the reward is goal-based than piece-rate; and the effect of hedonic (vs. utilitarian) reward nature on employee performance is more positive when the reward is goal-based than piece-rate. These results inform managers of the need to consider reward nature and reward contingency together in reward design: adjusting the reward nature is likely more useful in balancing employees’ production effort and voluntary training effort for jobs where goal-based rewards are offered than for jobs where piece-rate rewards are offered. Utilitarian reward nature can motivate employees to allocate more time to training than hedonic reward nature when the reward is goal-based; however, reward nature matters less when the reward is piece-rate.