When Do Group Incentives for Salespeople Work?

Abstract

When should sales managers employ group incentives rather than individual incentives to motivate their sales force? Using economic experiments, the authors show that two-person group incentives can outperform individual incentives and that the relative efficacy of group incentives depends on three important factors. First, the strength of social ties among the group members matters. Effort decisions in group-based incentives increase significantly when members socialize briefly before committing effort. Second, the design of the group incentive matters. For the group incentive to work better than the individual incentive, the group-based component (i.e., how much the payment scheme weights the contribution of others) in the former cannot be too large. Third, the informational feedback that group members receive matters. When socialized group members can observe one another's true effort, rather than only their output, effort surprisingly decreases. The authors show that a model that accounts for social preferences and the psychological loss that occurs when teammates underestimate one's effort can explain salesperson behavior in group incentives well.