Relative Reward
Relative Rewards within Team-Based Compensation
BERND IRLENBUSCH and GABRIELE K. RUCHALA
December 2006 Abstract
How to design compensation schemes to motivate team members appears to be one of the most challenging problems in the economic analysis of labour provision. We shed light on this issue by experimentally investigating team-based compensations with and without bonuses awarded to the highest contributors in teams. A purely team-based compensation scheme induces agents to voluntarily cooperate while introducing an additional relative reward increases effort and efficiency only when the bonus is substantial. In this case, however, the data suggests that tournament competition crowds out voluntary cooperation within a team.
Keywords Teamwork; Bonus Pools; Relative Rewards; Motivation Crowding Out; Voluntary Cooperation; Personnel Economics; Experiments
JEL Classification Codes C72; C91; H41; J33; L23; M52
Authors Bernd Irlenbusch London School of Economics Department of Management (MES) Houghton Street London WC2A 2AE United Kingdom tel: +44-20-7955-7840 fax: +44-20-7955-6887 e-mail: b.irlenbusch@lse.ac.uk
Gabriele Ruchala University College London Department of Economics (ELSE) Gower Street London WC1E 6BT United Kingdom tel: +44-20-7679-5852 fax: +44-20-7916-2774 e-mail: g.ruchala@ucl.ac.uk
We thank two anonymous referees, David Dickinson, Andrea Ichino, Manfred Königstein, and Dirk Sliwka for very helpful comments to improve the paper. All errors are our own. Financial support by the Deutsche Forschungsgemeinschaft (through grants IR43/1-1, KR2077/2-1 and KR2077/2-3) and by the Economic and Social Research Council (via ELSE) is gratefully acknowledged.
1. Introduction Teamwork is increasingly seen as an appropriate structure to organise various labour environments (BEYERLEIN 2000, MUELLER, PROCTER, and BUCHANAN 2000, PRAT 2002, ZWICK 2004,
VAN
HOOTEGEM, BENDERS, DELARUE, and PROCTER 2005). The suitable
provision of incentives
BERND IRLENBUSCH and GABRIELE K. RUCHALA
December 2006 Abstract
How to design compensation schemes to motivate team members appears to be one of the most challenging problems in the economic analysis of labour provision. We shed light on this issue by experimentally investigating team-based compensations with and without bonuses awarded to the highest contributors in teams. A purely team-based compensation scheme induces agents to voluntarily cooperate while introducing an additional relative reward increases effort and efficiency only when the bonus is substantial. In this case, however, the data suggests that tournament competition crowds out voluntary cooperation within a team.
Keywords Teamwork; Bonus Pools; Relative Rewards; Motivation Crowding Out; Voluntary Cooperation; Personnel Economics; Experiments
JEL Classification Codes C72; C91; H41; J33; L23; M52
Authors Bernd Irlenbusch London School of Economics Department of Management (MES) Houghton Street London WC2A 2AE United Kingdom tel: +44-20-7955-7840 fax: +44-20-7955-6887 e-mail: b.irlenbusch@lse.ac.uk
Gabriele Ruchala University College London Department of Economics (ELSE) Gower Street London WC1E 6BT United Kingdom tel: +44-20-7679-5852 fax: +44-20-7916-2774 e-mail: g.ruchala@ucl.ac.uk
We thank two anonymous referees, David Dickinson, Andrea Ichino, Manfred Königstein, and Dirk Sliwka for very helpful comments to improve the paper. All errors are our own. Financial support by the Deutsche Forschungsgemeinschaft (through grants IR43/1-1, KR2077/2-1 and KR2077/2-3) and by the Economic and Social Research Council (via ELSE) is gratefully acknowledged.
1. Introduction Teamwork is increasingly seen as an appropriate structure to organise various labour environments (BEYERLEIN 2000, MUELLER, PROCTER, and BUCHANAN 2000, PRAT 2002, ZWICK 2004,
VAN
HOOTEGEM, BENDERS, DELARUE, and PROCTER 2005). The suitable
provision of incentives