Formal teamwork is present in a majority of companies and, informally, every organization is in fact a large team of employees. But managers continue to focus their performance improvement efforts almost exclusively on competition rather than cooperation when designing rewards.
In a recent essay for the Washington Post’s“On Leadership” section, Eyal Winter, a professor of economics at the Hebrew University of Jerusalem, makes the case for team-based incentives. Winter points to a real-life experience by Continental Airlines some 20 years ago. Following a loss of more than $600 million in 1994, Continental was on the verge of bankruptcy. In February 1995, it initiated a program that promised each employee a bonus of $60 for every month in which the airline was ranked among the top five carriers in on-time performance. It ended that year with a $224 million profit, followed by a profit of $319 million in 1996.
“It turns out, it was precisely because Continental’s employees were more concerned about not disappointing their peers than about making an extra $60 that this scheme was so amazingly successful,” Winter states. “The fear of depriving your peers a bonus because of your laziness was a much more meaningful motivator than the fear of losing your own bonus.”
Winter says there is a host of business and economics research that supports the superiority of team incentives over individual ones. In 2001, Washington University researchers found that the move from individual to team incentives at a garment manufacturing facility in Napa, California improved productivity by 14 percent. Last year, two researchers from the University of Montevideo in Uruguay found that team incentives improved college students’ performance on course work and exam grades by 20 percent when compared against individual incentives.
“Team incentives are successful because of our craving for social gratitude and our fear of social pressure,” Winter says. “For such tactics to be effective in the long term, the organization has to maintain a high level of transparency. If workers are poorly informed about peers’ efforts and performance — that is, if it’s impossible to tell the difference between the team’s savers and the team’s shirkers — then social acceptance and social pressure are meaningless.
“Managing teams successfully is always about finding the right balance between the individual and the group,” he adds. “If it’s only about competition, then a worker will invest part of her effort in making other workers’ outcomes less successful instead of exerting all her effort toward making her own outcome more successful. If it’s all about cooperation, then some workers will just capitalize off others’ diligence.”
This makes effective team incentives so hard to design. But they are vital to organizational success. As Winter summarizes, “Getting it right requires managers to stop thinking of workers as entities who simply calculate the tradeoff between effort and money, and to start thinking of them as social and moral figures who have more complex considerations at play.”
