When should sales managers employ group incentives rather than
individual incentives to motivate their sales force? Using economic
experiments, the authors show that two-person group incentives can
outperform individual incentives and that the relative efficacy of group
incentives depends on three important factors. First, the strength of
social ties among the group members matters. Effort decisions in
groupbased incentives increase significantly when members socialize
briefly before committing effort. Second, the design of the group
incentive matters. For the group incentive to work better than the
individual incentive, the group-based component (i.e., how much the
payment scheme weights the contribution of others) in the former cannot
be too large. Third, the informational feedback that group members
receive matters. When socialized group members can observe one another's
true effort, rather than only their output, effort surprisingly
decreases. The authors show that a model that accounts for social
preferences and the psychological loss that occurs when teammates
underestimate one's effort can explain salesperson behavior in group
incentives well. [ABSTRACT FROM AUTHOR]