Evaluating a Company's New Incentive Plan
A technology firm wants to determine if a new bonus system is more effective at motivating its programmers than the old system of a fixed annual salary. In Year 1, all programmers worked under the fixed salary system. In Year 2, the company introduced a new system where programmers receive a bonus for each software feature they complete. The company observes that the average number of features completed per programmer was significantly higher in Year 2. Management concludes that the new bonus system was the sole reason for this increase in productivity. Based on the principles of sound economic comparison, identify a potential change in 'technology' and a potential change in 'programmer preferences/composition' that could have occurred between Year 1 and Year 2, and explain how each could offer an alternative explanation for the observed productivity increase.
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Evaluating a Company's New Incentive Plan