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Financial incentives and performance: A study of pay-for-performance in a professional organization

Young GJ, Beckman H, Baker E. Financial incentives and performance: A study of pay-for-performance in a professional organization. Journal of Organizational Behavior. 2012 Oct 27; 33(7):964-83.

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We investigated the effect of financial incentives on performance in a professional organization. Whereas agency theory treats tangible rewards such as money as a potentially powerful motivator for improving performance, the professional control perspective posits that the motivational effects of financial incentives will depend on the intended recipients attitudes toward the incentives relative to their professional values. The study setting was a large network of physician practices that adopted a financial incentive program to improve physician performance in the management of diabetic patients. Consistent with agency theory, performance did improve following the introduction of the incentive. However, consistent with the professional control perspective, physicians' psychologically based attitudes toward the incentive program regarding its impact on their own work autonomy and the importance of the performance goals moderated the effect of the incentive on performance. Study findings indicate that agency theory and professional control are complementary theoretical perspectives for understanding how professionals will respond to the imposition of performance-related financial incentives. In terms of practice, pay-for-performance programs aimed at professional organizations should be designed to take into account the values and goals of an organization's professionals to maximize the effect of financial incentives on performance. Copyright 2012 John Wiley and Sons, Ltd.

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