Comparisons of the effects of individual and collective performance-related pay on performance: A review

• Published in: Human resource management review 2023-12, Vol.33 (4), p.100982, Article 100982
• Main Authors: Wood, Stephen, Leoni, Silvia, Ladley, Daniel
• Format: Article
• Language: English
• Subjects: Collective incentives; Free riding; Individual performance; Intrinsic motivation; Organizational performance; Performance-related pay; Sorting effects
• ISSN: 1053-4822; 1873-7889
• DOI: 10.1016/j.hrmr.2023.100982

Debate on whether performance-related pay enhances organizational performance has centred on individual-based systems. This paper reviews studies that compare these with collective-based systems such as team bonuses and profit-sharing. Analysis of such comparisons – both field and experimental studies – reveals that collective systems, either alone or in conjunction with individual systems, are associated with higher performance. In no study do individual incentives outperform collective systems. Tests for moderators were rare but suggest that task interdependency may enhance collective systems' effects. Tests of mediators are also rare but point to enhanced levels of cooperation and idea generation under collective systems. This review examines how the included studies contribute to our understanding of key issues in payment-systems research – the roles of sorting effects and free riding under collective systems, and whether financial incentives may undermine intrinsic motivation – and finds it is limited, suggesting future work should concentrate on these areas. •Analysis of comparisons of payment systems shows collective systems to be superior.•In no study do individual incentives outperform collective systems.•Free riding is not a significant factor undermining collective systems' efficacy.•Enhanced cooperation, helping behaviors and idea generation explain the difference.•Collective systems can therefore support core high-involvement management practices.