The controllability principle suggests that employees should not be held accountable for factors outside their control. This study develops novel theory to challenge that thinking. According to the theory, holding employees accountable for uncontrollable factors like peer performance can lead to improved decision‐making by increasing how much employees learn from those uncontrollable factors. I expect this effect to occur because goal‐focused employees only consider information that seems goal‐relevant, and uncontrollable factors only seem goal relevant when employees are held accountable for them. Results from a decision‐making experiment support the theory. In particular, paying participants based on uncontrollable factors improves their decision‐making despite providing them with weaker economic incentives. This positive effect is more pronounced when the uncontrollable factors are more informative and when individuals are more goal‐focused. These findings reveal a previously unexplored benefit of disregarding the controllability principle that can help explain why broad, uncontrollable metrics are so prevalent and successful in practice.

Leading by example is one of the most powerful methods to encourage individuals to work toward a common objective. Despite the importance of leadership, little is known about how the effectiveness of leading by example depends on institutional features, such as the transparency and design of leaders' compensation contracts. We conduct two experiments to study this interplay between leadership and contracting in organizations with social missions (i.e., socially driven organizations). We find that under non-transparent contracts, leader contributions to the social objective positively influence follower contributions, reflecting effective leading by example. More importantly, under transparent contracts, the positive effect of leader contributions on follower contributions is diminished by an increase in the intensity of variable compensation and/or the amount of fixed compensation in the leader's contract. Our study informs the debate on pay transparency and demonstrates that organizations need to carefully consider the effects of contract design on leadership effectiveness. Data Availability: Contact the authors.

Reciprocity plays a critical role in the way employees respond to managerial control decisions. The current consensus is that employees punish managers for implementing unkind controls (negative reciprocity) more than they reward managers for implementing kind controls (positive reciprocity). We challenge this consensus. Prior research focuses on settings that emphasize employees' immediate reciprocal responses. However, in the workplace, employees often respond over long periods of time to sticky control decisions (e.g., budgets, pay, decision rights). Focusing on these long‐term settings, we predict and find that, while negative reciprocity is initially stronger than positive reciprocity, it also fades more over time than positive reciprocity. This differential fading is so pronounced in our setting that positive reciprocity is stronger overall in the long run. Thus, in long‐term settings, positive responses to kind controls may play a more important role than negative responses to unkind controls. Our results inform managerial decisions about the use of kind versus unkind controls and suggest potential long‐term benefits of pay disparity and other policies that treat employees differentially.

Research suggests that employees work harder under penalty contracts than under economically equivalent bonus contracts. We build on this literature by examining how the motivational advantage of penalty contracts depends on a common aspect of real-world contracts: payoff ambiguity. With payoff ambiguity, employees provide effort without knowing how much pay they will receive for a given level of performance. According to our theory, this ambiguity opens the door for employee optimism, which has contrasting effects under each contract frame. Results from an experiment support this theory, with an increase in ambiguity leading to less employee effort with penalty contracts (as employees optimistically expect small penalties) and more effort with bonus contracts (as employees optimistically expect large bonuses). We also find that these effects are stronger for more dispositionally optimistic employees. Overall, our results suggest that bonus contracts may be more motivating and penalty contracts less motivating than previously thought.