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Team Structure and the Effectiveness of Collective Performance Pay

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  • Ratto, Marisa

    ()
    (Université Paris-Dauphine)

  • Tominey, Emma

    ()
    (University of York)

  • Vergé, Thibaud

    ()
    (CREST)

Abstract

The adoption of performance related pay schemes has become increasingly popular in the public sector of several countries. In the UK, the scheme designers favoured collective performance pay with the aim to foster cooperation across offices. The resulting team structure included several offices (subteams) within the same team, defined by the remuneration scheme. In this paper we analyse the strategic interactions across subteams created by a two-level team structure, in order to assess whether rewarding collective performance necessarily promotes cooperation. We show that such team structure creates conflicting incentives to free-ride across and within subteams. Moreover, the relative size of subteams can be a powerful means to deliver incentives when funds for performance rewards are limited. Using data for one of the incentive schemes piloted in the UK, we analyse the role of the target level and of the relative size of subteams on subteams' performance.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6747.

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Length: 29 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6747

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Keywords: incentives; teams performance; sub-teams; cooperation;

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  1. Yeon-Koo Che & Seung-Weon Yoo, 2001. "Optimal Incentives for Teams," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 525-541, June.
  2. Propper, Carol & von Hinke Kessler Scholder, Stephanie & Tominey, Emma & Ratto, Marisa & Burgess, Simon, 2010. "Smarter Task Assignment or Greater Effort: the impact of incentives on team performance," Economics Papers from University Paris Dauphine 123456789/4727, Paris Dauphine University.
  3. Simon Burgess & Carol Propper & Marisa Ratto & Emma Tominey, 2004. "Incentives in the Public Sector: Evidence from a Government Agency," The Centre for Market and Public Organisation 04/103, Department of Economics, University of Bristol, UK.
  4. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, Elsevier, vol. 78(3), pages 275-299, November.
  5. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 611-36, May.
  6. William E. Encinosa, III & Martin Gaynor & James B. Rebitzer, . "The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 49, Carnegie Mellon University, Tepper School of Business.
  7. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(4), pages 801-17, August.
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