Performance-based pay systems for teams: explaining the design of performance-based pay systems for teams from an expanded agency theory perspective

The implementation of teamwork has been growing steadily in the last decade. Companies suppose that the use of teams improves their performance and supports the achievement of their strategic goals. The high relevance of teams in the business world is reflected by an increasing literature on teamwork, team success and the management of teams. One central question concerning the management of teams is the design of pay systems, especially of performance-based pay systems for teams. This aspect has not yet been fully explored in the literature with regard to the agency problems that are associated with managing teams and teamwork. This paper aims to close that gap by exploring how performance-based pay systems for teams should be designed from an expanded agency theory perspective with regard to possibly arising agency problems.