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Does Team-Based Compensation Give Rise to Problems when Agents Vary in their Ability ?

Author

Listed:
  • Claude Meidinger

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Jean-Louis Rullière

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Marie Claire Villeval

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper reports the results of an experiment on how team composition influences both the contract offer of employers and employee performance when a revenue-sharing scheme is introduced. Experimental evidence shows that the principal ceases trying to monitor her team through a contract offer when agents vary in their ability. In this case, agents focus more heavily on their teammate's behaviour than on the principal's offer and therefore, regardless of the level of team-based compensation, a large amount of free-riding occurs within the team. In contrast, when the team is homogeneous, agents are better able to use the contract offer as a coordination device among themselves and therefore achieve higher efficiency.

Suggested Citation

  • Claude Meidinger & Jean-Louis Rullière & Marie Claire Villeval, 2001. "Does Team-Based Compensation Give Rise to Problems when Agents Vary in their Ability ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179979, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00179979
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00179979
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    Cited by:

    1. Königstein, Manfred & Ruchala, Gabriele K., 2007. "Performance Pay, Group Selection and Group Performance," IZA Discussion Papers 2697, Institute of Labor Economics (IZA).
    2. David J. Cooper & Krista Saral & Marie Claire Villeval, 2021. "Why Join a Team?," Management Science, INFORMS, vol. 67(11), pages 6980-6997, November.
    3. Claude Montmarquette & Jean-Louis Rullière & Marie-Claire Villeval & Romain Zeiliger, 2004. "Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students," Management Science, INFORMS, vol. 50(10), pages 1379-1389, October.
    4. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, July.
    5. Englmaier, Florian & Gebhardt, Georg, 2010. "Free Riding in the Lab and in the Field," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 344, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    6. Englmaier, Florian & Gebhardt, Georg, 2016. "Social dilemmas in the laboratory and in the field," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 85-96.
    7. repec:hal:journl:hal-00857364 is not listed on IDEAS
    8. Hideo Owan, 2014. "How should teams be formed and managed?," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-83, August.
    9. Vranceanu, Radu & El Ouardighi, Fouad & Dubart , Delphine, 2013. "Coordination in Teams: A Real Effort-task Experiment with Informal Punishment," ESSEC Working Papers WP1310, ESSEC Research Center, ESSEC Business School.
    10. Landeo, Claudia M. & Spier, Kathryn E., 2015. "Incentive contracts for teams: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 496-511.
    11. Mathieu Lefebvre & Lucie Martin-Bonnel de Longchamp, 2022. "Knowledge acquisition or incentive to foster coordination? A real-effort weak-link experiment with craftsmen," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 6(S1), pages 93-107, July.
    12. Philip Babcock & Kelly Bedard & Gary Charness & John Hartman & Heather Royer, 2011. "Letting Down the Team? Evidence of Social Effects of Team Incentives," NBER Working Papers 16687, National Bureau of Economic Research, Inc.
    13. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    14. Marilyne Antonetti & Alexandra Rufini, 2008. "Social norms, coordination and collaboration in heterogeneous teams," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(7), pages 547-554.
    15. Sijun Wang & Yuanjie He, 2008. "Compensating Nondedicated Cross-Functional Teams," Organization Science, INFORMS, vol. 19(5), pages 753-765, October.
    16. Hong, Fuhai & Hossain, Tanjim & List, John A., 2015. "Framing manipulations in contests: A natural field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 372-382.
    17. Chao, Hong & Croson, Rachel T.A., 2013. "An experimental comparison of incentive contracts in partnerships," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 78-87.
    18. Jeffrey Carpenter & Andrea Robbett & Prottoy A. Akbar, 2018. "Profit Sharing and Peer Reporting," Management Science, INFORMS, vol. 64(9), pages 4261-4276, September.
    19. Wang, Yahua & Wang, Huan, 2022. "Effects of farmland use rights transfer on collective action in the commons: Evidence from rural China," Land Use Policy, Elsevier, vol. 120(C).
    20. Dutcher, Glenn & Saral, Krista, 2022. "Remote Work and Team Productivity," MPRA Paper 115253, University Library of Munich, Germany.

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