Assistant Professor of Managerial Economics & Decision Sciences
Conventional wisdom has it that companies get what they pay for. If they want to attract the best talent, they had better tout high wages.
But recent research suggests that financial incentives do more than just lure top candidates—they can also send potential workers a signal about who is a good fit for a given position. And sometimes that signal is dead wrong.
A Ugandan nonprofit—BRAC Uganda—provided the perfect vehicle to study the relationship between posted salary and social mission. Erika Deserranno, an assistant professor of managerial economics and decision sciences at the Kellogg School of Management, collaborated with BRAC Uganda to track the behavior of several thousand potential job applicants for newly created health-worker positions. Her data suggest that when the jobs are advertised as high paying, they actually attract fewer applicants who are committed to the organization’s social mission.
Being a health-worker for BRAC Uganda consists of a combination of tasks, some of which are prosocial, or oriented toward benefiting the community at large, and others of which are non-prosocial, or oriented toward personal profit. For example, workers disseminate information on healthcare best practices within their community (a prosocial activity) but also make money by selling household goods and first-aid products to their neighbors (a non-prosocial task).
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The dual nature of the job creates “a lot of variation in retention and performance,” explains Deserranno. “Some people stay a long time; some stay for two days and then drop out. I was interested in the question of how to actually get people who will stay on the job and perform these prosocial duties well.”
Deserranno worked with BRAC to systematically tweak how the health-worker positions were advertised. How would different financial incentives, they wondered, impact applicant quality? “It’s really hard to find organizations that are willing to change their recruiting tactics in a randomized way,” Deserranno says. “But I’ve known BRAC for a while, they trust me, and they’re really interested in understanding how to improve their recruitment so that these communities can benefit.”
“By paying people more, you may end up actually changing the type of people that you attract, but also the number of people that you attract.”
Deserranno devised three different advertisements for the job, each one describing a different level of compensation (low, medium, or high) alongside a prominent description of the job’s prosocial tasks (such as educating neighbors on disease prevention, distributing medicine, and assisting pregnant women). A team of thirty enumerators surveyed 3,500 potential applicants in over three hundred rural villages in which BRAC was recruiting; those who received jobs were tracked for an additional two years. “It’s very data-intensive because you need the data on each stage of the recruitment process, plus information about how long they stay in the job and how well they do,” Deserranno explains.
Deserranno found a striking relationship between financial incentives and applicants’ perceptions and interests. When the job was advertised as high paying, potential applicants were 18% more likely to believe that the primary purpose of the job was to earn money rather than serve the community. Furthermore, Deserranno found that highlighting the job’s financial incentives (by advertising a medium or high level of compensation) attracted more applicants with a personal interest in earning money. These individuals were 40 to 50 percent more likely to apply for the job, compared with when it was advertised as low paying.
Deserranno also discovered that the increasing financial incentives sent an additional negative signal to potential applicants with prosocial motivations. People with prior experience as a health volunteer, or who described themselves as valuing the job’s community impact over its earning potential, were 20 percent less likely to apply when the job was advertised as being highly paid.
“If people think they will earn more, they think that the job will involve spending more time on income-generating activities rather than social activities,” Deserranno explains. This has a “crowding-out” effect on prosocially motivated applicants, who are discouraged from applying. “This is problematic, because I found that these prosocial people are actually the ones who perform the best on the job and stay significantly longer.”
According to Deserranno, there are implications for effective recruiting: “Increasing financial incentives, especially in the social sector, could backfire.”
The specifics of her experiment may not seem applicable to labor markets in developed nations—Uganda has one of the world’s highest unemployment rates, and 60 percent of its population is under 20 years old—but the problem of effective labor recruitment and retention is a universal one, Deserranno says. While compensation is an obvious lever for recruiters to pull in any labor market, “the point is that we have the first evidence showing that these incentives can convey signals that affect the number and types of people who apply for a job,” she explains.
In other words, money talks—and exactly what it says to potential job applicants must be managed carefully depending on local context. In Silicon Valley, for example, the high salaries for programming jobs signal a simple asymmetry in supply and demand. “But in other private-sector jobs, high pay may actually signal that the job is very difficult or very unpleasant to do,” she says. “By paying people more, you may end up actually changing the type of people that you attract, but also the number of people that you attract for different reasons.”
Deserranno does not believe, however, that “doing good” for society and “doing well” for oneself must always be in opposition. “It’s not easy, but if you align the incentives better with your pool of potential applicants, you’ll get better results in terms of selection,” she says. “There’s very little research on the effectiveness of nonfinancial incentives in selection of workers. This is one of the topics I would love to analyze in the future.”
Until then, the old adage that “money talks” will still hold. But what money actually says may be more complicated than it seems.
Assistant Professor of Managerial Economics & Decision Sciences
John Pavlus is a writer and filmmaker focusing on science, technology, and design topics. He lives in Portland, Oregon.
Deserranno, Erika. 2014. “Financial Incentives as Signals: Experimental Evidence from the Recruitment of Health Workers.” Working paper.
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