The Hidden Cost of Competition : The Effect of Competition for Monetary Rewards and Social Recognition on Psychological Pressure and Knowledge Sharing

In today's economy, jobs frequently comprise multiple tasks and duties, which presents a challenge for the design of incentive systems. We examine how competition for monetary rewards (tournament compensation schemes versus piece-rate compensation) or standing in rankings (public disclosure of rankings with rank anonymity removed) in one task affect employee cooperation (operationalized through a knowledge sharing task) with former competitors in an unrewarded and unrelated task. For this purpose, we conduct a two-part laboratory experiment and hypothesize that competition in the first task negatively affects cooperation in the second unrelated task. We further hypothesize that psychological pressure that employees experience from competition mediates the effect of competition in one task on cooperation in another task. Our results support our hypotheses. In supplemental analyses we find that the decrease in cooperation results from the behavior of low performers in the competition, whereas cooperation by high performers is not affected by competition. Our results have important implications for compensation setting practice in business