Do competitive bonuses ruin cooperation in heterogeneous teams?

Abstract

A debate among practicing managers is whether to use cooperative or competitive incentives for team production. While competitive incentives may drive individual effort higher, they may also lead to less help and more sabotage, with unclear consequences overall, especially when team members' abilities differ. Using a lab experiment, we examine how increasing competitive incentives affects performance as team composition changes. We find that competitive incentives generally under-perform noncompetitive incentives and a larger bonus does not generate enough effort to compensate for a loss in help. Our results help understand better how to balance out individual versus team rewards and how firms could structure teams when employees have heterogeneous abilities.