Non-Verifiable Communication in Homogeneous and Heterogeneous Teams

Abstract

This study investigates whether non-verifiable communication from team members to a manager responsible for allocating performance-based bonuses increases team performance. Specifically, we investigate whether allowing individual team members to make bonus allocation recommendations provides information that enhances the reward-performance relation, and, therefore, increases team effort and performance. Drawing on both economic and behavioral theories, we predict that non-verifiable communication has a positive effect on team performance. Further, we predict that the effect is greater when team members have homogeneous (i.e., equal) abilities compared to when team members have heterogeneous (i.e., unequal) abilities. We design an experiment to test these predictions and find support for both. That is, the positive effect of non-verifiable communication on performance is greater when teams are homogeneous compared to heterogeneous. Results of our study contribute to both theory and practice in that they help build our understanding of the role of non-verifiable communication in alleviating free-riding in teams. Given that real-world teams vary along a continuum of homogenous to heterogeneous abilities, our study helps to inform practitioners in the design of appropriate performance evaluation systems in team settings.