Incentives That Induce Task-Related Effort, Helping, and Knowledge Sharing in Workgroups

Abstract

Cooperation and coordination among employees can yield significant productivity gains. In this study, we explore the design of optimal incentive systems that induce task-related effort, helping, and knowledge sharing within workgroups. We identify three distinct types of employee linkages that must be accommodated in the design of effective incentive systems: (1) outcome linkages, whereby the outcome of one employee's task is influenced by that of another; (2) help linkages, whereby each employee can directly expend effort on helping another; and (3) knowledge linkages, whereby each employee can share job-related knowledge with another. We analytically investigate the effect of each type of employee linkage, and some combinations of these linkages, on the optimal design of incentive systems. Our analytical results demonstrate how, by optimally weighting individual-level and workgroup-level incentives, managers can balance the need to induce cooperation and coordination among employees with the need to manage employees' incentive-related risk. Counter to conventional wisdom, we also demonstrate that both group and individual incentives are necessary to facilitate cooperative behaviors such as knowledge sharing in workgroups. Further, we empirically test some of the insights developed from the analytical models; our empirical findings support these analytical results.