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Team Structure and the Effectiveness of Collective Performance Pay

  • Ratto, Marisa

    ()

    (Université Paris-Dauphine)

  • Tominey, Emma

    ()

    (University of York)

  • Vergé, Thibaud

    ()

    (CREST)

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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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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  1. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  2. Burgess, Simon & Propper, Carol & Ratto, Marisa & Tominey, Emma, 2012. "Incentives in the Public Sector: Evidence from a Government Agency," IZA Discussion Papers 6738, Institute for the Study of Labor (IZA).
  3. Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2007. "The sociology of groups and the economics of incentives: Theory and evidence on compensation systems," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 187-214, February.
  4. Simon Burgess & Carol Propper & Marisa Ratto & Stephanie von Hinke Kessler Scholder & Emma Tominey, 2009. "Smarter Task Assignment or Greater Effort: the impact of incentives on team performance," The Centre for Market and Public Organisation 09/215, Department of Economics, University of Bristol, UK.
  5. Che,Y.K. & Yoo,S.W., 1998. "Optimal incentives for teams," Working papers 8, Wisconsin Madison - Social Systems.
  6. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
  7. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
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