Teamwork Trumps Individual Executive Bonuses for Company Performance

"Do executive bonuses, or any other aspect of compensation, predict organizational performance?" That's what a Harvard University team wanted to know when it surveyed 205 senior executives—30% U.S., the rest from 38 countries around the globe. The answer was "no." Performance as reported by the executives was compared variables such as "Extent of team culture"; various measures related to incentives; and to incentives based on company-wide performance (profit- or gain-sharing) versus incentives based on the performance of an executive's unit. ("Gain-sharing" rewards improvements regardless of profit changes.) "The only (measured) variable that significantly predicts company performance is the extent to which the culture is one of teamwork," the study said.

The surveyed executives also thought company performance incentives had positive effects such as higher organizational effectiveness and executive morale. Unit-based incentives were seen as causing short-term thinking and attempts to manipulate numbers, and as wasting corporate time and energy.

The authors wrote:

• "A company-wide gain-sharing plan…seems to have a strong positive effect on perceived motivation, capacity to attract talent, and organizational effectiveness.
• "…management may be better served by investing in the development of a corporate context that produces good teamwork (perhaps using gain-sharing to reinforce the team culture) than in the design of individual incentive changes… Because this is difficult to do, it is also a potential source of sustainable competitive advantage.
• …"formal human resource programs like the introduction of incentives do not usually succeed in producing a fundamental change in organizational culture and behavior. Instead, changes in the organizational arrangements designed to affect teamwork across key activities essential to the implementation of the strategic task are the path to higher performance."

Source: Beer, M., and N. Katz (03), ?Do Incentives Work? The Perceptions of a Worldwide Sample of Senior Executives,? Human Resource Planning 26(3):30.