Collective performance-related pay systems may have more effect than individual performance-related schemes, so research led by Professor Stephen Wood at University of Leicester School of Business shows.

This finding is based on a systematic review of research studies that directly compared the effects of financial involvement or collective performance-related pay systems, such as profit-sharing and team bonuses, with their individual counterparts, such as piece rate and sales bonuses. Systems that combine both may also be more effective than when individual performance-related pay is used alone. In only two studies did the individual pay system outperform the collective systems. Nonetheless in some of the studies that included hybrid systems, in which an individual system is used in conjunction with a collective one, they also produced greater performance effects than individual systems used alone. 

We can then be certain about recommending that individual pay systems are unlikely to be optimal. This may reflect longstanding concerns about them: that the quality of work may be impaired as employees focus on the quantity of output and speed of delivery, that employee’s game the system or forsake income in favour of lower effort, that the performance benefits of intrinsic motivation may be reduced so performance suffers.

In contrast, collective systems may have positive effects on group processes and cooperation within the workplace and in turn on idea-generation and sharing, helping behaviours, improved methods of working, and goal interdependence. Intrinsic motivation may not be undermined. Instances of the introduction of collective systems in the studies reviewed were when team working was introduced and confirm how they can support the greater employee involvement this and problem-solving groups can provide.

The advantages of hybrid systems are less clear-cut. They may provide the best of both worlds or give off mixed messages, which is especially likely if they are replacing or supplementing an individual PRP system as people gravitate to the individual element and thus become individualistic. John Lewis is famous for its hybrid system – its organizational-wide bonus, the annual announcement of this being heralded in the press and often used as a kind of barometer of the retail sector.  But the study shows they only perform better than collective ones in just over half of the studies that include them.

For a fuller summary of the issues surrounding the study please click here to open a new window. 

For the full paper or advice on enhancing involvement through pay systems contact Professor Stephen Wood