Salespeople. Fruit pickers. Factory workers.
All have varying job descriptions, but all are part of industries that are likely following a team-based pay structure — a system of compensation where employees are rewarded with bonus compensation, or increases to pay, based on performance and goal completion.
While there is a range of research on team incentives, there is less literature focusing on worker ability variation. That’s why Bryant’s Xiaofei Pan, Ph.D., alongside outside researchers, explored how different team incentives can promote productivity in lower ability workers (e.g., individuals who have limited formal education and training). The group’s findings were published this past spring in the Journal of Economic Behavior and Organization.
“We were particularly interested in lower and higher ability workers' response to different incentives and ended up being surprised by some of the results,” says Pan, an associate professor of Economics who teaches within the College of Arts and Sciences’ Mathematics and Economics Department.
For their study, researchers conducted a real-effort experiment in a lab setting where 248 participants were randomly paired into two-person teams and independently engaged in tasks that would show identifiable individual contributions. Prior to being teamed up, participants completed a benchmark task to assess their relative abilities and performance results with their other teammate. The experiment design, notes Pan, varied from some other team incentive studies, which may have called for individuals to select a predefined effort level, rather than exerting effort within a task.
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The experiment examined three different team incentives: equal sharing (individuals work together and equally share earnings); winner-takes-all (whoever is more productive gets all the earnings); and individual piece-rate (individual earnings are based upon individual contributions). Researchers decided to add an additional layer to the study by examining each team incentive with and without a team threshold.
“Workers would only share the revenue generated when the target revenue is achieved; otherwise, the worker is paid a low penalty wage,” Pan says. “Some people had that threshold and some people did not, so we could then evaluate how having that threshold would impact people's productivity across the three incentives.”
Results suggested that teams had higher output under the equal sharing model; this was the category where lower-ability workers generated the highest effort.
“Usually, we think equal sharing can give one a ‘free ride’ because whatever is produced is split equally,” Pan says.
Noting that equal sharing was not significantly statistically higher than individual piece-rate, researchers theorized that guilt aversion could have caused lower ability workers to increase their productivity since they did not want to let their partner down. Looking at threshold results, Pan explains that participants preferred individual piece-rate over the other incentives when there was no threshold; however, with the presence of a team threshold, more participants preferred equal sharing.
Overall, the study offers broad managerial implications for choosing forms of compensation for teams, says Pan. Managers should be attentive to lower-ability worker performance since their responsiveness to sharing rewards can be critical to team performance.