When Individuals Form Teams: Experimental Evidence Regarding Links Among Monetary Incentives, Stress, Effort, Attractiveness and Performance

Abstract:     
This study extends research on the determinants of performance by examining the effect of compensation scheme and perceptions of task attractiveness on team performance. In a laboratory experiment all participants completed a cognitively difficult task both individually and in teams of three individuals. Both individuals and teams were asked to self-report their perceptions of the task’s attractiveness before and after completing the task for compensation, and were compensated for their task performance using one of two compensation schemes: fixed-wage or incentive-based.

All links in the theoretical model were supported. Team results provide support for links between Compensation and Stress; Effort and Performance; Attractiveness and Effort; and finally, between Stress and Change in Attractiveness. Individual results provide support for links between Compensation and Stress; Stress and Effort; Effort and Performance; Attractiveness and Performance; Compensation and Change in Attractiveness; Stress and Change in Attractiveness; and finally, between Change in Attractiveness and Performance. Additionally, we find evidence that Attractiveness is a more important determinant of Effort and Performance in the absence of incentive-based compensation.

Number of Pages in PDF File: 34

Keywords: Incentive compensation, Stress, Effort, Task attractiveness, Performance, Teams

JEL Classification: D79, M49

working papers series