The Effects of Preventive and Detective Controls on Employee Performance and Motivation*

Organizations routinely implement preventive controls (e. g., segregation of duties, physical control over assets, etc.) and detective controls (e. g., performance reviews, reconciliations, inventory counts, period audits, etc.) to mitigate risk and to achieve organizational objectives. Yet very little is known about why each formal control type is effective. Importantly, organizations generally can choose to implement either preventive or detective controls to address the same control objective. Therefore, understanding the costs and benefits of control types is critical. To understand the impact of preventive and detective controls on employees' performance and intrinsic motivation, we examine two specific attributes: (a) the extent to which controls restrict employees' autonomy and (b) the timeliness of control feedback. We conduct an experiment using an incomplete contract setting in which one dimension of the employees' task is compensated and one dimension is controlled. The results show that detective controls with timely feedback improve employees' performance toward the control objective, without diminishing their intrinsic motivation. In contrast, the restriction of autonomy associated with preventive controls does not improve employees' performance toward the control objective relative to detective controls with timely feedback, but significantly reduces employees' motivation. Neither control attribute diminishes employees' performance on the compensated dimension of the task, suggesting that the monetary incentives in the contract continue to provide effective motivation. Our results reveal the importance of designing and implementing controls that provide timely feedback but do not restrict autonomy. Specifically, the results suggest that organizations can achieve their control objectives without hampering employee motivation by implementing detective controls with timely feedback.