Team identity and performance‐based compensation effects on performance

Purpose – The purpose of this paper is to investigate whether team members work harder and perform better when they are compensated based on both team and individual performance than either alone and whether teammates' familiarity with one another influences the effectiveness of the compensation scheme. Design/methodology/approach – Four‐member ad hoc student teams repeatedly complete an interdependent task on the computer in an experiment which manipulates individual compensation plan, team compensation plan, and teammate familiarity. Findings – Results indicate that offering a combination of individual and team performance‐based compensation results in comparable performance under both strong and weak team identity, suggesting that the lower productivity levels associated with weak team identity can be overcome with performance‐based compensation. Research limitations/implications – The data are collected from an experimental game created to resemble one interdependent production environment, thus reducing the generalizability of the results. An experimental environment was chosen because it allowed testing of only the variables of interest – team compensation, individual compensation, and team identity, while holding other factors (i.e. task and compensation variation) constant. Practical implications – The results suggest that, regardless of team identity, firms can benefit from offering both team and individual performance‐based compensation. Originality/value – This study examines individual and team compensation simultaneously, in contrast to studying each in isolation. Additionally, this study investigates whether teammate familiarity moderates the effect of performance‐based compensation on performance.