Group-based Incentives Research Articles

Group-Based Incentives and Individual Performance: A Study of the Effort Response

Group-based incentives are attractive in contexts where production is interdependent. Prior work shows such incentives increase group performance despite freeriding concerns, yet little is known about the effort response of individuals. Using individual-level data, the authors assess the introduction of group-based performance pay using difference-in-difference estimation. Overall, performance increased by 19%. Nearly all workers contributed to this effect. Further, two-thirds of this effect stems from increased efficiency (more output per unit of time) and one-third from higher attendance. Both incentive and selection effects are present. By leveraging individual-level data, the authors pose new questions and evidence to the group-based incentives literature.

조직의 차등 성과급 균형 운영과 조직 소통 그리고 일의 만족

In today"s workplace, most organizations use rewards as a tool to enhance performance and promote employee motivation. However, the debate over the effectiveness of differentiation in reward continues, with existing studies focusing on the comparative advantages of individual and group incentives in such differential rewards. As a result, little is known about how to balance these two incentives to maximize their benefits. Drawing on the optimal uniqueness theory, we propose that balancing the proportion of individual and group incentives has a positive effect on employee motivation and performance. Specifically, when the proportion of individual-based and group-based incentives is balanced, employees can maintain both personal and social identities, which in turn satisfies their personal and social needs. To verify these theoretical discussions, we used the Human Capital Corporate Panel survey data collected by the Korea Vocational Competency Research Institute. We found that organizations that maintain a balanced proportion of individual and group incentives have a positive effect on organizational communication perceived by employees, which in turn has a positive impact on overall work satisfaction. Furthermore, the study also found that the indirect effect of a balanced incentive system on work satisfaction occurs through organizational communication. Theoretical and practical implications are discussed.

The effect of mixed wage incentives on performance: an action research report

The purpose of this paper is to analyse whether a mixed incentives scheme can positively influence company performance. The research report documents the design and implementation of a mixed wage incentives scheme to an apparel manufacturer in Serbia. The scheme was designed as a combination of individual- and group-based incentives with the wage fund based on group performance and allocated based on individual performance. The effects on performance were measured continuously over a period of forty-four months through labour productivity when applying individual, group, and mixed incentives, respectively. The results show that mixed incentives resulted in significant labour productivity increase, and outperformed both the individual- and group-based wage incentives schemes. The scheme promotes cooperation, team effort, information, and knowledge sharing, while maintaining individual accountability. Apart from the effect on performance, mixed incentives implementation positively affected employees’ attitude towards work, their motivation to improve, and learn new skills.

Heterogeneity, coordination and competition: the distribution of individual preferences in organisations

This paper experimentally investigates how inter- and intragroup heterogeneity (related to individual cooperative preferences) influences intergroup coordination. Coordination incentives are implemented through an intergroup rank-order competition. A pre-competition phase determines how individual heterogeneity is distributed across groups within an organisation. Two treatments are compared: a horizontal-heterogeneity treatment (H-Hetero, baseline), where individual differences are randomly distributed within and between groups, and a vertical-heterogeneity treatment (V-Hetero), in which groups are internally homogeneous but differ considerably from each other. In contrast to expectations, I find that vertical (intergroup) heterogeneity, when being accompanied by intragroup homogeneity, does not reduce the ability of groups to coordinate and keeps overall performance at very high levels. Indeed, subjects react more strongly to the coordination/competition incentives in vertically heterogenous organisations. Further analysis suggests that group dynamics are mainly driven by a positive orientation towards inequality (distributional preferences) of the members of the initially least cooperative groups, and their non-conditional cooperative behaviour. These results have implications for the design of group-based incentives and governance in organisations and societies.

The effect of relative performance feedback on individual performance in team settings under group-based incentives

This study reports the results of an experiment that analyses the behavioural effect of relative performance feedback (RPF) on individual performance when compensation is based on team performance. Specifically, it investigates whether RPF affects individual performance differently when the comparison focuses on other members of that individual’s team (within-group RPF) or on other teams (between-group RPF). We predict a negative effect of within-group RPF on individual performance. We also predict that between-group RPF moderates that negative effect, since it encourages individuals to focus on group goals rather than individual goals. Consistent with our predictions, results show that the negative effect of within-group RPF on individual performance is mitigated by between-group RPF. Our results can help accountants to better understand how the effects of relative performance feedback differ according to the predominant comparison target.

Managerial intentions for and employee perceptions of group-based incentives

PurposeThis paper aims to interpret and compare managerial intentions for and employee perceptions of group-based incentive systems.Design/methodology/approachThe data comprise interviews with managers and employees in four Finnish firms with experience of company-wide incentive systems involving profit-sharing and team-based rewards. Benefitting from social exchange theory, managers’ intentions and employees’ perceptions are examined.FindingsManagers’ and employees’ views resemble each other concerning profit-sharing as reflecting reciprocity rooted in perceived distributive fairness, whereas examination of the team-based rewards revealed impediments in reciprocity. While managerial intentions for team-based rewards refer to social exchange with economic intensity via selection of controllable performance measurements aimed at making individual-level effort count, the employees’ perceptions deem such metrics non-controllable, reflecting perceived distributive and procedural unfairness.Practical implicationsProfit-sharing seems to create fair social obligation and goal congruence between managers and employees, whereas team-based incentives easily suffer from unfairness, reducing their effectiveness.Originality/valueDistinguishing between managerial intentions and employee perceptions pertaining to incentive systems facilitated in-depth exploration of the social exchange inherent in them, conceptualized in terms of economic intensity, fairness and controllability. With this lens, qualitative analysis revealed differences in interpretations of controllability and fairness between the managerial intentions and employee perceptions. The central contribution to scholarship takes the form of interpretations reflecting upon these key findings.

Best practices for businesses promoting bicycling

The benefits of active commuting (walking and biking to work) are well documented, though rates of participation remain low in the United States. Workplace policies, programs and environment can be a significant influence on employee’s travel mode choice, though relatively little is known about appropriate strategies. Therefore, the purpose of our study thus was to examine the best practices employers could implement in order to increase employee active commuting, focusing specifically on cycling. Businesses designated as bike-friendly were interviewed to examine how they addressed engineering, encouragement, education and evaluation for biking among employees. Interviews were recorded, transcribed verbatim and coded. Employers (n = 16) ranged from small to large size and represented a variety of industries. Businesses reported the creation of a culture for cycling, providing adequate bike parking/infrastructure and maintenance facilities, investing in education, offering either financial or group-based incentives and including competitions for promoting biking. Interviewees also noted the importance of engaging with the community to support biking. The findings from the study can be used as a foundation for employers looking to increase active commuting and physical activity among their workers and inform further research surrounding active commuting interventions.

Financial Group Incentives Improving Medication Persistence - Health Behavior Engineering Approach

In the current study we develop and evaluate different group-based financial incentives based on the concept of loss aversion and social effects. Behavioral engineering approaches have been demonstrated to be key in improving persistence behavior which continues to be a primary target of efforts to improve health outcomes for patients with chronic disease. However, there is limited research trying to successfully design and calibrate group-based incentives in anonymous settings as a sustainable and cost-effective intervention strategy. The current study follows the procedure of behavioral economic engineering. Based on the findings of the conceptual model of medical non-persistence we engineer two different group-based financial incentive schemes which are predicted to increase persistence. These incentives are derived upon concepts of behavioral economics, in particular social effects, guilt aversion and peer competition, and incorporated into tailored group-contingent bonus schemes. We conduct randomized behavioral laboratory experiments to evaluate the performance and effectiveness of each incentive scheme under controlled conditions. Implementing group-contingent bonus schemes in an anonymous setting significantly improve treatment persistence compared to control. Group impact, guilt aversion and peer competition seem to each influence individual behavior to continue with therapy. Previous research demonstrated that individual financial incentive schemes build on principles of behavioral economics, and thus the personally expected consequences, drive treatment persistence. Peer competition is a key underlying mechanism of gamification approaches. The current study shows that peer competition in the context of financial incentives is a vital mechanism to promote individual persistence behavior. Further on, the findings suggest that patients take expected impact on others into account as well. These results do not only seem to be surprising as the impact of peer effects and guilt aversion in anonymous settings is quite often neglected, but open up new opportunities for the design and calibration of consumer/health behavior incentives.

Designing Incentives for Public School Teachers: Evidence from a Texas Incentive Pay Program

Pay-for-performance is a popular public education reform, but there is little evidence about the characteristics of a well-designed incentive pay plan for teachers. Some of the literature suggests that effective incentive plans must offer relatively large awards to induce behavioral changes. On the other hand, the experimental economics literature suggests that plans with only a handful of awardees can be less effective at changing behavior than plans that offer an array of possible awards. Still other research suggests that group-based incentives are the most effective strategy when teamwork and cooperation are integral to the production process—as is arguably the case in education. This study takes advantage of a pilot pay-for-performance program in Texas to explore incentive design not only from the perspective of the employer—by examining changes in teacher productivity and retention—but also from the perspective of the employee—by examining the preferences revealed by the incentives teachers design for themselves. We find that when given the opportunity, teachers design relatively weak, group-oriented incentive pay plans. In turn, those relatively weak incentives do not appear to be associated with any significant changes in teacher productivity, although they are correlated with teacher turnover, which, in the long run, could theoretically improve student outcomes.

When Do Group Incentives for Salespeople Work?

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.

The Differential Effects of HR Practices on Operational Outcomes and Financial Performance

This article explores the link between human resource (HR) practices (training, discretion, and group-based incentives) and a series of performance outcomes, including customer satisfaction, labor efficiency, sales revenues, and profitability. We examine whether HR practices have different relationships with distinct performance outcomes and whether they mediate the relationship between operational and financial outcomes. We draw on a unique field-based, quasi-experimental setting in which employee tasks are randomly assigned. Surveys of almost 1,000 employees in 68 call centers are aggregated to the establishment level and matched to vendor-provided customer satisfaction surveys and company archival data on labor efficiency, revenues, and profitability. Results show that HR practices have differential effects on the outcomes of interest, with employee discretion having the most consistent, positive relationship with different performance outcomes. Customer satisfaction partially mediates the relationship between HR practices and financial outcomes (sales revenue and profitability). Labor efficiency is negatively related to sales revenues, presumably because longer time with customers allows employees to better meet customer demands, and in turn, sell more.

Reward System Design and Group Creativity: An Experimental Investigation

In an environment where three-person groups develop a creative solution to an important problem, we examine whether the efficacy of either individual or group-based creativity-contingent incentives depends on whether they take the piece-rate or tournament form. We predict and find that group (intergroup) tournament pay increases group cohesion and collaborative efforts, which ultimately lead to a more creative group solution relative to group piece-rate pay. While individual (intragroup) tournament pay increases individual efforts, we find that it does not enhance the creativity of group solutions relative to individual piece-rate pay. Our results advance the burgeoning management accounting literature on creativity-contingent incentives by demonstrating that reward systems are more likely to promote group creativity through collaborative efforts rather than independent individual efforts. We also provide important insights into when and why tournament pay can boost group creativity in organizations. In doing so, we contribute to a better understanding of observations from practice suggesting that organizations valuing creativity often induce intergroup competition.

Mixing Individual Incentives and Group Incentives: Best of Both Worlds or Social Dilemma?

Equity theory emphasizes making distinctions between individual contributions to teams and then recognizing these with differentiations in rewards. However, social interdependence theory emphasizes maximizing cooperation in teams by compensating members equally. Several researchers have advocated offsetting the limitations of individually based incentives and group-based incentives by mixing the two. However, the authors contend that this puts team members in a social dilemma, leading them to focus on the individually based component. The authors find that in comparison to group-based only incentives, mixed individual/group incentives lead team members to perform faster but less accurately and focus on their own taskwork to the detriment of backing up behavior.

Group-Based Compensation in Professional Service Firms: An Empirical Analysis of Medical Group Practices

ABSTRACT: This study investigates factors influencing the use of group-based compensation in professional service partnerships and the relation between group-based compensation and performance. I use data on 11,971 physicians in 935 medical groups to expand the extant literature on group incentives by providing some of the first large-sample, empirical evidence on the role of task interdependence, income risk, mutual monitoring, and group size in a firm's choice of compensation contract. Consistent with agency theory, I find that group incentives are more prevalent in medical partnerships that practice highly task-interdependent specialties and those that face greater malpractice risk. Group-based incentives are also more common in relatively small groups in which homogeneity in training, experience, and gender facilitate mutual monitoring. Tests relating individual physician productivity to compensation method suggest that productive benefits induced by group incentives offset reductions in output associated with free-riding and effort devoted to monitoring.

Individualism—Collectivism and Incentive System Design as Predictive of Productivity in a Simulated Cellular Manufacturing Environment

We respond to recent calls for a more inclusive behavioral as well as structural perspective on today's state-of-the-art manufacturing designs. Specifically, we empirically examine individualism—collectivism's productivity-related consequences for today's agile, cellular manufacturing designs across incentive systems. Findings indicate that, as hypothesized, the alignment of cell members' collectivistic orientation, a cooperative task structure, and equalitarian performance incentives resulted in one of the higher levels of productivity. However, the assumption that productivity will monotonically increase with the alignment of organizational components and worker orientation now appears questionable. While complete misalignment resulted in a productivity deficit averaging 7.6 percent, as long as one of the two major organizational design elements explored in this study (task structure and individual- versus group-based incentives) is aligned with the individualistic or collectivistic orientation of workers, optimal cell productivity is achieved.

The Rise of Individual Performance Pay

Why does individual performance pay seem to prevail in human-capital-intensive industries where teamwork is so common? We present a model that aims to explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peerdependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold-up, the lower is the implementable degree of peer-dependent incentives. In a setting with team effects - complementary tasks and peer pressure, respectively - we show that while group-based incentives are optimal if agents are dispensable, it may be costly, and in fact suboptimal, to provide team incentives once the agents become indispensable.

Cost System and Incentive Structure Effects on Innovation, Efficiency and Profitability in Teams

The small number of full-scale adoptions of activity-based costing (ABC) coupled with ABC implementation failures have fueled a debate about the costs and benefits of ABC relative to more traditional volume-based costing (VBC) systems. ABC differs from VBC by focusing attention on activities and resources that are under the control of multiple workers. Reducing these costs often requires a coordinated effort. Therefore, incentives that motivate workers to cooperate are a prerequisite to successful process improvements based on ABC. Alternatively, when competitive incentives are combined with ABC, the result can be unexpected and negative. We examine how accounting cost system and incentive structure choices interact. We find that profits are highest when ABC is linked with group-based incentives, which provide high motivation to cooperate. In contrast, the lowest level of profit occurs when the same information-rich cost system, ABC, is coupled with tournament-based incentives. VBC, a cost system that provides a lower level of cost driver information, moderates the incentive effect. Thus, our results demonstrate that the effectiveness of ABC relative to traditional VBC is influenced by its interactive effect with incentive compensation.

Group decision support systems and incentive structures

Many studies have compared the advantages and disadvantages of meetings using Group Decision Support Systems (GDSS), but relatively little research has been conducted on the role of incentives in these meetings. An experiment was conducted with 40 eight-person groups to determine the influence of incentive distribution mode (group or individual) and incentive type (positive or negative) on GDSS outcomes. Results indicate that group performance, including task performance, consensus, process satisfaction, and participation, is higher if there are group-based incentives, and that negative incentives or extinction result in more participation and less satisfaction. No interaction effects were found between incentive distribution mode and incentive type.

Strategic Compensation for Integrated Manufacturing: The Moderating Effects of Jobs and Organizational Inertia

Theorists suggest that integrated manufacturing requires a compensation strategy that reinforces collective effort, professionalism, and flexibility. But several aspects of job design and organizational characteristics may mitigate a direct manufacturing-compensation relationship. Results of this study show virtually no direct effects of advanced technology, just-in-time inventory control, and total quality management on compensation practices. However, when integrated manufacturing is coupled with job characteristics that signal “knowledge work,” compensation systems tend to emphasize group-based incentives, salary, and seniority-based pay. Sources of organizational inertia moderate these relationships.

Employee Participation Programs, Group-Based Incentives, and Company Performance: A Union-Nonunion Comparison

This analysis examines whether union representation positively or negatively influences the effectiveness of employee participation programs and group-based incentives in improving firm performance. Examined at the firm level, a model of the independent and interaction effects of participation, profit and gain sharing, and union representation is estimated against data on 841 manufacturing firms in Michigan in 1989. The evidence indicates that employee participation programs contributed substantially more to performance in unionized firms than in nonunion firms, whereas profit and gain sharing programs contributed substantially more to performance in nonunion firms than in unionized firms.