Group vs. Individual Performance Pay When Workers Are Envious

We consider the effects on reward systems of workers concern withrelative pay by comparing the wage costs of providing incentives through groupversus individual bonus schemes. When workers have a propensity for envy, eitherscheme may be the least cost one depending on the workers outside opportunitiesand on the precision of available performance measures. The result follows from thetrade-off between the dissatisfaction associated with the prospect of unequal pay andthe incentives it generates when workers are envious.