To Find the Best Incentives for Employees, Start with a Simple A/B Test
insight.kellogg.northwestern.edu
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Understanding the importance of decision-making
Identifying biases that affect decision-making
Analyzing the potential outcomes of a decision
Using A/B testing for employee incentives
Marketers use A/B tests to set different call-to-action messages against another or find which of two messages will cause the most sales on an e-commerce site.
Managers can also use A/B tests for other things, such as designing the best way to motivate employees. A single A/B test can provide a significant amount of information about how employees will respond to several incentive strategies.
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The right incentives
Organisations use a wide range of incentive schemes to motivate their employees: Some schemes are basic such as a base salary and a bonus if specific targets are reached. Other schemes are more complex. All involve critical decisions with critical trade-offs.
One of the only ways for managers to know if there are better incentive schemes for their particular organisation is by altering the existing scheme for a limited time and see what happens to performance.
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The accuracy of the A/B test model
Researchers found that using previously published productivity data can predict how employees perform under another entirely different incentive scheme.
Researchers also used actual productivity data to test their model's ability to design a better contract. They found that using data from any two contracts could enable employers to create a third contract that reaches over two-thirds of the gains of an optimal contract.
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Benefits of A/B testing
The data from an A/B test to create an incentive scheme is close to optimal.
The A/B testing framework doesn't require the employer to understand in advance anything about their employees' preferences, such as a dislike for working at a faster pace. They also don't need to understand the effort that goes into being more productive. Employers only need to observe and react.
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