Incentive distributions in heterogeneous work groups

Abstract

We use fine-grained federal personnel data to examine how work group diversity is related to the distribution of monetary rewards among employees who are working collectively on a team project. We focus on two types of diversity—demographic and functional—and hypothesize that the former will be positively associated with egalitarianism in reward distributions while the latter will be negatively associated with egalitarianism. Our theory is that managers’ distributional decisions will account for the likelihood of meeting with disagreement, and that this likelihood covaries in different ways with demographic and functional diversity. We argue that managers of demographically heterogeneous groups will deploy egalitarian rewards to avoid exacerbating intra-group conflict along demographic fault-lines. By contrast, managers of functionally heterogeneous groups will be able to justify non-egalitarian rewards because group members accept that functional heterogeneity is associated with intra-group status differences. Additionally, we argue that functional heterogeneity can, by legitimizing intra-group status differences that are correlated with race and gender, activate the negative potential for demographic diversity to be a driver of inequality. Our results suggest that functional heterogeneity and demographic heterogeneity are negatively associated with egalitarianism in group rewards, and that functional heterogeneity interacts with demographic heterogeneity to further reduce egalitarianism.