Relative Rewards within Team-Based Compensation

38 Pages Posted: 26 Nov 2006

See all articles by Bernd Irlenbusch

Bernd Irlenbusch

London School of Economics & Political Science - Department of Management; IZA Institute of Labor Economics

Gabriele K. Lünser

University College London - Centre for Economic Learning and Social Evolution (ELSE)

Date Written: November 2006

Abstract

How to design compensation schemes to motivate team members appears to be one of the most challenging problems in the economic analysis of labour provision. We shed light on this issue by experimentally investigating team-based compensations with and without bonuses awarded to the highest contributors in teams. A purely team-based compensation scheme induces agents to voluntarily cooperate while introducing an additional relative reward increases effort and efficiency only when the bonus is substantial. In this case, however, the data suggests that tournament competition crowds out voluntary cooperation within a team.

Keywords: teamwork, bonus pools, relative rewards, motivation crowding out, voluntary cooperation, personnel economics, experiments

JEL Classification: C72, C91, H41, J33, L23, M52

Suggested Citation

Irlenbusch, Bernd and Lünser, Gabriele K., Relative Rewards within Team-Based Compensation (November 2006). IZA Discussion Paper No. 2423. Available at SSRN: https://ssrn.com/abstract=947075

Bernd Irlenbusch (Contact Author)

London School of Economics & Political Science - Department of Management ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 7840 (Phone)
+44 (0)20 7955 6887 (Fax)

HOME PAGE: http://www.lse.ac.uk/collections/management/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gabriele K. Lünser

University College London - Centre for Economic Learning and Social Evolution (ELSE) ( email )

Gower Street
London WC1E 6BT
United Kingdom

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