When, and how, performance-contingent incentives improve performance is an important question for organisations. Empirical results have been mixed – performance-contingent incentives sometimes increase performance, sometimes decrease performance, and sometimes have no effect. Theorists have called for further research to identify the effect of various moderating variables, including knowledge and task complexity. This study responds by considering the role of instruction in providing the necessary knowledge to reduce task complexity. The results suggest that a performance-contingent penalty can be a particularly effective means of directing effort for a simple task. For a complex task, performance can be improved through instruction. The type of instruction is important – with rule-based instruction effectively directing effort – however principle-based instruction is necessary to facilitate problem investigation and problem-solving.



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