The Impact of Feedback and Target Achievability in Incentive Contracts on Effort and Performance: Insights From an Eye‐Tracking Study

ABSTRACT To what extent does the provision of feedback moderate the relation between target achievability and people's effort? We addressed this research question by conducting an experiment using an eye‐tracking device. We hypothesized and found that people exerted more effort after receiving feedback combined with stretch targets, whereas they exerted less effort when feedback was combined with easy targets. Furthermore, without feedback, people with stretch targets exerted less effort than those with easy targets. The results indicate that stretch targets are more demotivating than easy targets when people do not know where they stand with respect to achieving the targets. We extend prior work by using eye‐tracking devices to measure effort, specifically by timing how long participants fixated on the tasks. This study advances behavioral accounting research by providing a method to observe which financial cues capture decision‐makers' attention. Our use of eye‐tracking technology enables researchers to measure visual focus and fixation duration to understand how individuals process accounting information. Finally, our research revealed that positive feedback on easy targets induces complacency and reduced effort, whereas negative feedback on stretch targets motivates people to exert more effort.