When my kids were small, we participated in a neighborhood carpool. One morning, on my turn, my son had to stay at home due to an illness, and I was going to drive only the neighbors' children to school. The routine morning phone call to my mom ended with the following request: "Drive safely! Those are someone else's kids!"
Crazy as it sounded, my mom was conveying a commonly held moral concern—that I should be more respectful of things that are dear to my friend than dear to me. Most of us, surprisingly, share this stance. And it’s not necessarily because we are altruists, but because it serves us well from a social point of view.
Imagine, as another example, that you forget to pay your parking ticket and incur a $60 added fine. Now suppose instead that you forget to pay your friend's ticket (who has asked you to do so since he is away on vacation) and you incur that same fine for your friend. Which would make you feel worse?
Most people would say the second event. Yet despite the prevalence of this instinct, it’s rarely kept in mind when designing incentives in the workplace. Formal teamwork is present in the majority of companies and, informally, every organization is in fact a large team of employees, but managers focus almost exclusively on competition rather than cooperation when designing rewards.
In a 2014 survey of 350 publicly traded U.S. companies, 99 percent of the firms reported using some form of short-term incentive program, but only 28 percent said they use team incentives. Furthermore, 66 percent confessed that they are not even considering this type of incentive program.
A textbook exception is Continental Airlines. The year 1994 had ended with the company losing $613 million, in part due to very poor on-time performance. The company was on the verge of bankruptcy. In February 1995, the company initiated a program that promised each employee a bonus of $60 for every month in which the company was ranked among the top five U.S. carriers in on-time performance. It ended the year with a profit of $224 million, followed by a profit of $319 million in 1996.
How in heaven can a bonus of $60 a month get a Continental Airlines employee to work harder?
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. 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.
There’s a host of business and economics research into social phenomena like this, and the superiority of team incentives over individual ones. In 2001, Washington University researchers used a garment manufacturing facility in Napa, California, for a test. They found that the move from individual to team incentives improved productivity by 14 percent. And last year, two researchers from the University of Montevideo in Uruguay completed a study of undergraduate students' academic performance. Team incentives increased their course work and exam grades by 20 percent when compared against individual incentives.
For such tactics to be effective in the long term, however, the organization has to maintain a high level of transparency. Team incentives are successful because of our craving for social gratitude and our fear of social pressure. This means that if workers are poorly informed about peers' efforts and performance—that is, if it's impossible to tell the difference between the team's saver and the team's shirker—then social acceptance and social pressure are meaningless.
Case in point: Researchers Eva-Maria Steiger and Roi Zultan designed a laboratory experiment to simulate team environments. They created two "workplace games," where one represented a high-transparency workplace and the other a low-transparency one. The effect of transparency was dramatic. The workers' level of effort started out roughly the same, regardless of context. Yet in the high-transparency team, the workers’ effort gradually increased; and in the low-transparency team, it gradually decreased.
Managing teams successfully is always about finding the right balance between the individual and the group. 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 is what makes effective team incentives so hard to design. Still, they are the key to organizational success. 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.
Eyal Winter is a professor of economics at the Hebrew University of Jerusalem and the author of "Feeling Smart: Why Our Emotions Are More Rational Than We Think."