The Negative Consequences of Loss-Framed Performance Incentives

Lamar Pierce, Alex Rees-Jones and Charlotte Blank

No 26619, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Behavioral economists have proposed that incentive contracts result in higher productivity when bonuses are “loss framed”—prepaid then clawed back if targets are unmet. We test this claim by randomizing the pre- or post-payment of sales bonuses at 294 car dealerships. Although somewhat statistically imprecise, our analysis provides strong indications that the random assignment of loss framing had quantitatively important negative effects. We document that negative effects of loss framing can arise due to an increase in incentives for “gaming” behaviors. Based on these claims, we reassess the common wisdom regarding the desirability of loss framing.

JEL-codes: D03 D81 J22 J31 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-cta, nep-exp, nep-hea, nep-hrm, nep-lma, nep-opm and nep-tre
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Journal Article: The Negative Consequences of Loss-Framed Performance Incentives (2025)
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