Team Identity and Performance-based Compensation Effects on Performance

This study investigates whether team members work harder and perform better when they are compensated based on both team and individual performance than when compensated based on team or individual performance alone and whether teammates? familiarity with one another influences the effectiveness of the compensation scheme. Four-member ad hoc student teams repeatedly complete an interdependent task on the computer in an experiment in which I manipulate individual compensation plan (flat wage or performance-based incentives), team compensation plan (flat wage or performance-based incentives), and teammate familiarity (identified teammates with pre-experiment interaction ? strong id or unidentified teammates with no pre-experiment interaction ? weak id). Results indicate that while the combination of team and individual performance-based compensation results in the highest performance, the incremental performance boost is higher from the first performance-based reward strategy, regardless of whether it is team or individual. Under both strong and weak identity, offering a combination of individual and team performance-based compensation results in comparable performance, suggesting that lower productivity levels associated with low team identity can be overcome with performance-based compensation. Together these results suggest that, regardless of team identity, firms can benefit from offering both team and individual performance-based compensation. However, companies should understand that the performance bump may be smaller from the second performance-based scheme.