Editing Incentive (section)

==Monetary incentives==
Monetary incentives are any form of financial good given to someone to incentivize their actions and align their incentives with those of the principal who provides the monetary incentive.<ref name=":0">{{Cite journal |last=Lazear |first=Edward P. |date=Summer 2018 |title=Compensation and Incentives in the Workplace |journal=Journal of Economic Perspectives |language=en |volume=32 |issue=3 |pages=195–214 |doi=10.1257/jep.32.3.195 |s2cid=158410132 |issn=0895-3309 |doi-access=free}}</ref> This is a type of extrinsic incentive and is commonly seen in the workplace. The effect of monetary incentive can be broken down into two categories: the "standard direct price effect," and "indirect psychological effect".  These two types of monetary effect often work in opposite direction and crowd out incentivised behaviour.<ref name="Gneezy 191–210">{{Cite journal |last1=Gneezy |first1=Uri |last2=Meier |first2=Stephan |last3=Rey-Biel |first3=Pedro |date=2011-11-01 |title=When and Why Incentives (Don't) Work to Modify Behavior|journal=Journal of Economic Perspectives |volume=25 |issue=4 |pages=191–210 |doi=10.1257/jep.25.4.191 |issn=0895-3309|doi-access=free }}</ref> However, several studies have suggested that it is possible to manage the crowding-out effects by utilising a principal-agent model that incorporates nonstandard assumptions.<ref name="Gneezy 191–210"/> For instance, a monetary incentive may come in the forms of [[profit sharing]], bonuses, stock options or even paid vacation time. As such, a well-chosen monetary incentive programs can produce positive motivation and influence the productivity and output of individuals and firms.<ref>{{Cite journal |last=Pokorny |first=Kathrin |date=May 2008 |title=Pay—but do not pay too much: An experimental study on the impact of incentives |journal=Journal of Economic Behavior & Organization |language=en |volume=66 |issue=2 |pages=251–264 |doi=10.1016/j.jebo.2006.03.007 |issn=0167-2681}}</ref>

A common monetary incentive system used by firms is performance-based pay where incentives are paid based on employees' productivity or output over a particular period of time. Some methods are commission-based where the employee, for example a salesperson, receives a payment directly correlated to their output level. Firms also pay additional wages or rewards for employees who work overtime and for their additional work above firm expectations. [[Expectancy theory]] implies that, provided employees place sufficient value on the monetary incentive to justify their extra effort and perceive that greater effort will result in better performance, such incentives can motivate employees to maintain high levels of effort and discourage shirking. This in turn increases the individual productivity of workers and the overall productivity of the firm.<ref name=":0" />

Other monetary incentives are less direct, such as awarding periodic, discretionary bonuses to top performers, offering the possibility of a promotion to a higher-paying position or [[profit sharing]] for team projects.<ref name=":3" /> Alternatively, firms can also incentivize their employees to perform by threatening to demote or terminate them for poor performance.<ref name=":3" /> When employees feel that their careers are in jeopardy, they are more likely to increase their efforts.

Monetary incentives do affect the effort and average performance of employees but are likely dependent on the scope of the job and the task variables. For routine jobs such as clerical and administration jobs that are mundane, the presence of monetary incentives will encourage employees to demonstrate consistent effort of diligence when the intrinsic incentive has been exhausted. On the other hand, if the task assigned is too challenging, monetary incentives make little to no difference in increasing an employee's contribution to work.<ref>{{cite book |last1=Camerer |first1=Colin F. |last2=Hogarth |first2=Robin M. |last3=Budescu |first3=David V. |last4=Eckel |first4=Catherine |chapter=The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework |date=1999 |doi=10.1007/978-94-017-1406-8_2 |editor-last1=Fischhoff |editor-first1=Baruch |editor-last2=Manski |editor-first2=Charles F. |title=Elicitation of Preferences |pages=7–48 |place=Dordrecht |publisher=Springer Netherlands |isbn=978-90-481-5776-1 |chapter-url=https://resolver.caltech.edu/CaltechAUTHORS:20110208-132914477 }}</ref>

The effect of monetary incentives can depend on the framing of the rewards. For example, in cadaveric [[organ donation]], funeral aids are perceived to be more ethical (particularly in showing gratitude and honoring the deceased donor) and potentially increase donation willingness than direct cash payments of the same monetary value.<ref>{{cite journal |author1=Arnold, R. |author2=Bartlett, S. |author3=Bernat, J. |author4=Colonna, J. |author5=Dafoe, D. |title=Financial incentives for cadaver organ donation: an ethical reappraisal |journal=Transplantation |year=2002 |volume=73 |issue=8 |pages=1361–1367 |doi=10.1097/00007890-200204270-00034 |pmid=11981440 |s2cid=29823737|doi-access=free }}</ref><ref>{{cite journal |author1=Pham, V. |title=Cash, Funeral Benefits or Nothing at All: How to Incentivize Family Consent for Organ Donation |journal=Review of Behavioral Economics |year=2021 |volume=8 |issue=2 |pages=147–192 |s2cid=237705443 |doi=10.1561/105.00000136 |url=https://mpra.ub.uni-muenchen.de/111047/12/MPRA_paper_111047.pdf}}</ref>