SMU SOE Seminar (Mar 8, 2017): Profits and Mission: Performance Incentives in a Multi-Goal Development Organization

The impact of performance pay in institutions with multiple goals depends on the degree of complementarity between tasks achieving each goal. Workers of a microcredit-centered development institution were randomly assigned to one of two bonus schemes, incentivizing either the performance of a microcredit program that contributed to its sustainability (credit bonus), or social mobilization, the institution’s mission (social bonus). We find that the credit bonus improved credit-related outcomes but it undermined the mission. In contrast, the social bonus advanced the mission without compromising the microcredit program but only for employees working alone, as it impacted negatively the performance of employees working in teams. We conclude that a fixed wage is the optimal contract if the institution cares both about sustainability and its mission.

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