Collective performance pay outperforms individual bonuses, University of Leicester review finds

Team-based performance-related pay is more productive than individual performance-related pay, according to a University of Leicester review.  

The review sought to compare individual-based practices such as merit pay, piecework or sales bonuses to a collective system such as a team bonus or profit-sharing schemes.  

The paper is a systematic review of research studies that directly compare the two systems and found that collective systems are associated with a higher level of performance than individual ones. 

According to the review, in no study do individual incentives outperform collective systems. In 61% of studies collective systems perform better than individual systems, either alone or in conjunction with individual systems, according to University of Leicester researchers led by Professor Stephen Wood. 

In 64% of cases where a hybrid system was assessed this performs better than either pure form. 

The majority of the studies reviewed were conducted in the USA. However, a well-known example of a successful hybrid system in the UK is the John Lewis Partnership’s annual bonus scheme.  

The review suggests that collective pay systems stimulate idea generation and sharing, helping behaviours, improved methods of working, and the setting of interdependent goals for individuals and groups.  

On the other hand, it concludes that individual systems can lead workers to focus on one outcome at the expense of others and hinder innovation.  

Professor Stephen Wood, Professor of Management at the University of Leicester School of Business and the lead author of the review, said: “The danger of all performance-related systems is that in heightening the saliency of money, one gets pay-related performance; but this seems to be a danger of individual systems but not of collective ones.  

“They can foster the kind of team working that is increasingly favoured in business and the public sector. And designed correctly, targeted at multiple goals, they can harvest the creativity and intrinsic motivation of all staff.” 

Comparisons of the Effects of Individual and Collective Performance-Related Pay on Performance was written by Stephen Wood, Silvia Leoni and Daniel Ladley. 

The report is now available to read in the US journal Human Resource Management Review.