What is it about?
This study looks at how the way contracts are framed—offering a bonus or threatening a penalty—affects how well employees perform when their pay depends on how they do compared to others. People have different natural motivations: some focus on performing ideally (promotion focus) and others on avoiding mistakes (prevention focus). Bonus contracts tend to trigger a “go for it” mindset, while penalty contracts trigger a “don’t fail” mindset. When these mindsets match a person’s natural motivation, they work harder. Our experiments show that people with a strong prevention focus perform best under penalty contracts in competitive settings, because the contract fits their natural style. Bonus contracts, on the other hand, don’t create this “fit” and don’t boost performance in the same way.
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Why is it important?
a) Tailoring incentive contracts to employees’ motivational focus can significantly boost performance in competitive settings. b) Understanding the interaction between contract framing and employee disposition can help organizations design more efficient and cost-effective incentive systems. c) The findings provide actionable guidance for managers to align performance goals with employee motivation, improving engagement and outcomes in relative performance schemes.
Perspectives
From my perspective, this article highlights an often-overlooked aspect of motivation: that how incentives are framed matters as much as the incentives themselves. I found it particularly interesting that penalty-based contracts can actually enhance performance for prevention-focused individuals. This challenges the common assumption that people always respond better to rewards than to penalties. It made me think about how often organizations adopt “one-size-fits-all” bonus schemes without considering individual differences in motivation.
Martin Altenburger
Webster Vienna Private University
Read the Original
This page is a summary of: Bonus or penalty contracts in relative performance schemes: a question of regulatory focus, European Accounting Review, October 2025, Taylor & Francis,
DOI: 10.1080/09638180.2025.2567384.
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