18413: Charismatic Leadership: An Antidote to the Pitfalls of Incentives? (session 26358)

Past research has established that charismatic leadership tactics can be a powerful motivator. In some settings, the increase in work output induced by a charismatic speech is comparable in size to the positive effect of high-powered financial incentives. But what about settings in which incentives backfire? In a between-subject laboratory experiment, we set up a real-effort work environment in which participants can execute a task in two ways: they can either “work hard” so that each produced unit creates a sizable benefit for the principal, or they can “take shortcuts”, which takes much less effort but also substantially reduces the benefit of a produced unit for the principal. When compensation is a fixed wage and the motivation speech is “standard”, we observe that participants mostly focus on the socially optimal, hard version of the task, but the general effort level is not particularly high. Exposing participants to financial incentives motivates participants to raise the overall effort level substantially, but the revenue generated for the principal decreases drastically. This counterproductive effect of performance pay is caused by the decision of the workers to concentrate almost exclusively on the inefficient, easy version of the task when incentivized. Combining the fixed wage with a charismatic motivation speech, in contrast, increases both the overall effort level and the revenue for the principal. The positive effect on the effort level is smaller than the incentives effect, but the charismatic speech induces workers to focus on the difficult version of the task. A combination of incentives and a charismatic speech leads to similar outcomes as using incentives alone. These results establish novel insights: On one hand, we show that charisma can be an effective motivation tool even in situations where incentives fail. On the other hand, however, charisma in our setting does not shield participants from the corrupting effects of incentives when the two tools are combined.

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