The effect of financial incentives on performance: A quantitative review of individual and team-based financial incentives

Authors


Abstract

We meta-analysed 146 studies (= 31,861) to examine the effects of individual and team-based financial incentives on peoples' performance and to explore potential moderators. The overall effect size of the individual incentives (116 studies) was positive (= 0.32). Moderator analyses revealed effect sizes to be larger for field studies (= 0.34) than for laboratory studies (= 0.29), larger for qualitative (= 0.39) than quantitative performance measures (= 0.28), and smaller for less complex tasks (= 0.19). Results on team-based incentives (30 studies) indicated a positive effect regarding team-based rewards on performance (= 0.45), with equitably distributed rewards resulting in higher performance than equally distributed rewards. This relationship was larger in field studies and smaller for less complex tasks. In addition, our results show that the effect of team-based rewards depends on team size and gender composition. Implications for organizational rewards and suggestions for future research are discussed.

Practitioner points

  • Our study demonstrates the importance of rewarding employees as teams to motivate them to a greater extent.
  • The results show that equitably distributed rewards lead to higher performance than equally distributed rewards.
  • Managers should design their appraisal and feedback process for individual team members and the team as a whole.
  • Our results provide useful information regarding the creation of appropriate reward systems.
  • Differences in reward characteristics, team composition, and distribution rules offer practical implications for factors on organizational (i.e., personnel selection, frequency, and amount of rewards), team (i.e., team characteristics, type of performance measurement), and individual level (i.e., importance of rewards, personality).

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