When Individuals Form Teams: Experimental Evidence Regarding Links Among Monetary Incentives, Stress, Effort, Attractiveness and Performance

Abstract

This study extends research on the determinants of performance by examining the effect of compensation scheme and perceptions of task attractiveness on team performance. In a laboratory experiment all participants completed a cognitively difficult task both individually and in teams of three individuals. Both individuals and teams were asked to self-report their perceptions of the task’s attractiveness before and after completing the task for compensation, and were compensated for their task performance using one of two compensation schemes: fixed-wage or incentive-based. All links in the theoretical model were supported. Team results provide support for links between Compensation and Stress; Effort and Performance; Attractiveness and Effort; and finally, between Stress and Change in Attractiveness. Individual results provide support for links between Compensation and Stress; Stress and Effort; Effort and Performance; Attractiveness and Performance; Compensation and Change in Attractiveness; Stress and Change in Attractiveness; and finally, between Change in Attractiveness and Performance. Additionally, we find evidence that Attractiveness is a more important determinant of Effort and Performance in the absence of incentive-based compensation.

Keywords: Incentive compensation, Stress, Effort, Task attractiveness, Performance, Teams

JEL Classification: D79, M49