This paper reviews the field experimental evidence on firm–employee relationships. There is strong evidence that output rises in response to financial incentives, but more mixed support for worker reciprocity in response to employer generosity. Non-financial approaches, such as worker recognition or adding ‘meaning’ to mundane tasks, can also increase output. Social relations are central to how firms function and have been shown to have an important impact on the design of incentive schemes. What we do not know, however, far exceeds that which we have learned. A broad swathe of important topics, including recruiting, worker promotion, and training, are virtually untouched thus far by field experiments.
Financial incentives increase performance: Evidence has largely come from relatively simple jobs, but some experimental evidence also exists for more representative jobs in the economy. The motivating effect of tournaments is more nuanced. Strong incentives can also induce unintended responses, like trade-offs between quality and quantity, or decreases in worker cooperation. Reciprocity works, but not always, and not permanently: Reciprocity appears to have some impact on workers' decisions to allocate effort, but the existing literature has not compellingly established the strength and the robustness of the effect. As a motivator, it is often significantly mitigated by social relationships, time frame, perceived underpayment, and other context factors. Non-financial incentives can also be effective: Firms can motivate worker productivity in ways that do not incur financial costs. For example, offering awards, social recognition, performance feedback, and use of faming. Social relations are important: Social interactions and ties within workplaces influence productivity. This has been shown among working' peers with respect to relationships, attitudes and abilities; relationships between workers and managers; and in the context of buyers and sellers. Work organisation affects performance: Work from home has been shown to increase productivity and work satisfaction. Working in teams has yielded evidence that it leads to greater productivity as compared to working individually. Loss of shared social connections in teams can decrease productivity.