Despite growing evidence that incentives based on group performance improve that performance, how this happens still isn't clear. Two researchers looked at the role of goal-setting by team members in this process. Small groups of U.S. undergraduate students were asked to create words using the letters of a sentence. Each person could expect to earn around $9 an hour, but some teams received that pay as a flat hourly rate; others received $6 plus 3¢ per word created ("low-variable pay"); and the remainder received $3 per hour and 6¢ per word ("high-variable pay"). Each group was given a practice session, then tried it two more times.
Groups with high-variable pay performed significantly better than flat-pay groups, while the low-variable groups did little better. High-variable groups were more likely to discuss and set goals for their round 2 and 3 performances than those with flat or low-variable pay, but the teams that chose the toughest goals had the most direct effect on performance.
Individuals with high-variable pay were much more committed to those goals than those with flat or low-incentive pay. For statistical reasons, though, the researchers felt they couldn't test to see if the average commitment level of all members in a given group had an effect.
Source: Guthrie, J., and E. Hollensbe (04), "Group Incentives and Performance: A Study of Spontaneous Goal Setting, Goal Choice, and Commitment," Journal of Management 30(2):263.
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