Evolutionary Efficacy of a Pay for Performance Scheme with Motivated Agents

Abstract

The paper studies the short-run and long-run effects of the introduction of a team-oriented Pay-for-Performance, P4P, payment scheme when agents may differ in their degree of intrinsic motivation toward the job. Suppose that new potential employees were able to assess the expected pay-offs of current workers. Then they may modify their approach to work in order to follow the employee type that earned the highest expected pay-off. We show that the definition of the scheme needs to take into consideration the effects produced on the evolution of the motivation of new generations. In particular the desirability and success of a P4P scheme strongly depend on the way incentives are allocated to the members of a team, on the power of the quality-related financial incentive and on the economic and social context in which the scheme is introduced. The analysis is in part motivated by the introduction in UK in 2004 of a P4P scheme for family practitioners in the UK (Quality and Outcomes Framework, QOF) and of a new system of assessing the quality of academic research completed in 2014 (Research Excellence Framework, REF).