Individual incentives (dis)encourage group behaviour in teams

In many organizations the classical hierarchical structure is increasingly replaced by the usage of teams. Teams are able to combine skills and experiences of their members, team members can learn from each other, and goals can be achieved faster. However, social loafing is a potential threat when people work in teams (cf. believe it or not 08.2013). The risk is that some group members contribute less than others to the team goals without having to deal with negative consequences due to their low performance.

In order to prevent social loafing and simultaneously benefit from the advantages of team structures, human resource managers often rely on different incentive systems. Some organizations already combined individual incentive systems, emphasizing the interests of each individual, with group incentive systems strengthening collective interests of the whole team with the risk of supporting social loafers. The objective is to avoid the weaknesses of each other and combine two worlds. In many cases you even find incentive systems based on three different levels: on the individual one (fixed monthly salary with individual performance-based bonuses), the team level (team-based compensation), and the organizational level (profit-sharing).

However, there are signs that the combination of both systems creates new problems. Christopher Barnes and his colleagues assume that the combination of individual and group-based incentives create a social dilemma as team members might focus on the individual component with negative effects on the cooperation within the team.

They examined this phenomenon in an experimental design with a sample of 76 teams of four. Each participant was randomly assigned to a team and a workstation. The task was to solve problems together on their computers in one common room. The distinctive feature of the computer simulation was that one randomly selected person of each team was assigned 50% of the workload while the other 50% of the workload were evenly split among the remaining three members (this was not communicated to the participants). Moreover, half of the teams were compensated on a group-based incentive system whereas the other half received a mix of individual and group-based incentives.

Results show that mixing individual and group-based incentives put team members in a social dilemma because individual interests are pitted against collective interests. In particular, compared to group-based incentives, mixed incentives lead team members to primarily focus on their individual goals rather than on the collective targets. Moreover, the researchers were able to show that mixed incentives increase the speed of individual performance, while it diminishes the accuracy and backing-up behaviour of the team members.

In summary, the results show that a combination of individual and group-based incentives is not the ideal solution for every situation. Managers need to evaluate to what extent the speed and the achievement of individual goals in a team is important before they apply a mixed incentive system. If accuracy, backing-up behaviour, and the opportunity to learn from each other are of particular interest, managers should consider implementing group-based incentives.