by Alex Palmer | July 10, 2012
Carrots, not sticks, are what drive employee productivity, according to new academic research. A study titled "Sticks and Carrots: The Effect of Contract Frame on Effort in Incomplete Contracts," finds that the promise of an incentive or bonus for a particular performance is not only more likely to create a trusting workplace, but to boost employee performance even in areas that are not being incentivized.

The study, which appears in the journal The Accounting Review, draws on the responses of 220 graduate and undergraduate accounting students. Participants were paired up, with one playing the role of employee and one playing the role of supervisor. The employees earned points based on decisions they made, such as types and amounts of investments on a computerized program. 

Some were promised a reward for choosing well while others were penalized if they chose poorly.

The results show that individuals who were penalized felt less of a sense of autonomy and greater sense of intrusion, while those positively incentivized had a stronger sense of trust between the employee and employer. 

The findings call into question earlier research that proposed that fear of punishment, whether a pay reduction, demotion, or disciplinary action, could be a powerful motivator. 

“Carrots work better than sticks - in other words, workers respond better to bonuses than penalties," said Karen Sedatole, Michigan State University associate professor of accounting and co-author of the study, in a statement.

In addition to Sedatole, the study was co-authored by Margaret Christ from the University of Georgia and Kristy Towry of Emory University. 

"What this means for companies is that employees who receive bonuses for their efforts will work even harder, increasing productivity and potentially bolstering profits," Sedatole said. "But those subjected to penalties tend to distrust the supervisor and, because of that, work less hard."

The full report is available here