Managers are often faced with the question how motivation can be maintained by their employees and what kind of intervention appears to be the most appropriate. Most of the time, the main focus is not on motivation but on the strong desire of a higher individual performance, productivity, and a better organizational outcome. What kind of advices shall be given to executives? Shall they set precise goals to their staff or shall they let their employees participate in the decision-making process concerning goal difficulty and goal specificity?

In this regard, two basic forms of assigning goals can be differentiated, namely “goal setting” and “management by objectives” (MBO). According to Locke (1968), goal setting means that both the difficulty and the measurability of a goal will substantially affect the motivation and thus the performance of individuals. Difficult and easy measurable objectives should have a positive effect on motivation and performance compared to easy and/or hard to measure goals. Given that participation is less important in goal setting and goal achievement, goals can be assigned without the participation of the employees. In contrast, MBO contains a certain degree of employee participation: objectives are discussed and agreed together and finally a discussion about monetary incentives takes place. The question remains, what motivates more?

Previous research concerning the effectiveness of participation and the agreement on objectives reaches back to the 1960s. In the mid-80s, two meta-analyses regarding goal setting were published. The first work by Guzzo, Jette, and Katzell (1985) examines the relationship between eleven different intervention programs and productivity, including goal setting and MBOs. Results show that goal setting – besides training – has the strongest relationship with productivity. Out of the eleven interventions, MBOs show the lowest correlation with productivity, which even disappears when differentiating between several productivity measures. Tubbs (1986) explicitly examined the effectiveness of goal setting and participation.

Again, the results show strong correlations between goal difficulty/goal measurability and productivity (especially if challenging targets were assigned). However, participation does not show a direct effect on productivity which supports the idea that participation does not guarantee a higher motivation or performance of individuals. These results show that participation alone cannot improve the performance of employees. However, this does not mean that participation of employees in goal setting is not useful. The involvement of employees during the formulation of goals is important to increase employee commitment. In addition, participation can help to set goals neither too difficult nor too easy to achieve. With regard to MBOs, it seems to be the case that the effectiveness of MBOs is somewhat problematic: If the same persons are involved in the goal setting process, the measurement of the goal achievement, and the amount of monetary compensation, then personal interests and relationships might negatively influence the objective evaluation of goal setting and achievement.