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Journal of Management and Business Research, 2009
26（ 3 ）：333-351
DOI： 10.6504/JOM.2009.26.03.06 |
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| The Effects of Tournament-based Incentives under Different Levels of Task Interdependence on Organization Performance: Field Empirical Evidence |
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Founded upon tournament theory, this article examines the impact of tournament-based incentives on organization performance under different levels of task interdependence. Tournament theory considers a group of employees competing for a fixed set of prizes defined by the pay dispersion between the winner and the loser. The employees exert efforts to increase the likelihood of winning a better prize and their efforts are increasing in the size of the prize. Task interdependence can vary from the lowest form of interdependence (such as an independent task) to the highest form of interdependence (such as a reciprocal task). Tournament-based compensation plans work well if employees perform tasks independently. However, a problem with tournaments is that since employees are compensated based on how well they do relative to their competitors, they are unlikely to help their competitors even though their tasks are highly interdependent, or the uncooperative behaviors among employees may even hurt organization performance. Balancing the tension between the cooperation of task interdependence and the competition of tournament-based compensation is a challenge for the design of tasks and reward system.
Although some empirical evidence reports that tournament-based incentives work on the CEO or the top management team, few studies focus on non-management employees. Moreover, prior studies ignore the impacts of the fit between incentive schemes and task interdependence on performance. In this paper I use an analytical model based on tournament theory to explore two questions: Does the wider pay dispersion between the winner and the loser in a tournament increase organization performance? Are there differential effects on performance from tournament-based incentives under different levels of interdependent tasks?
The predictions of the model suggest that wider pay dispersion between the winner and the loser in a tournament enhances organization performance under an independent task. However, two contradictory effects of greater pay dispersion make the performance change become blurred if employees work interdependently. On the one hand, greater pay dispersion will motivate employees to work harder in order to win higher pay. On the other hand, greater pay dispersion will prompt employees to not help their competitive colleagues and eventually hurt the organization performance. Therefore, the positive impact of greater pay dispersion under a high level of task interdependence on performance is less than that under an independent task. I further provide empirical analyses of tournament-based compensation, using personnel data of middle-level managers and employees and the performance data of 176 branches from a major car corporation.
The findings support that wider pay dispersion among employees under independent tasks is positively related to performance. I find that the effects of wider pay dispersion between the winner and the loser on performance under interdependent tasks are less than that under independent tasks. Thus, the empirical results demonstrate that the effectiveness of tournament-based incentives is influenced by their interactive effect with the level of task interdependence. The results imply that a company can improve organization performance when compensation schemes take into account the “fit” between different levels of task interdependence and tournament-based incentives. |
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| Task Interdependence, Incentives, Tournament Theory, Performance |
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