| This study uses an experiment to examine performance in group incentive contracts for groups of workers who differ in their social value orientation (hereafter, SVO). Free-riding and coordination problems arise in many group-based incentive contracts because of interdependencies amongst group members. I argue that the SVO of group members (i.e., the preferences of individuals for patterns of their own and others' outcomes) affects the extent of these control problems and therefore the efficacy of group-based incentive contracts. Three SVO types are generally recognized: 'prosocials', 'individualists' and 'competitors'.; Performance of groups, formed on the basis of SVO types, was examined in a piece-rate contract that pays each group member a piece-rate for each unit of group output; and two budget based contracts (medium and high budget levels) that pay no compensation if the budget is not met, an equal share of a group bonus if the budget is met and a piece-rate for each unit of output greater than the budget. The results indicate that under a piece-rate contract group performance was higher for prosocials and individualists than for competitor/mixed groups. Under the medium budget contract group performance was highest for prosocials followed by individualists and competitor/mixed groups. Under the high budget contract group, performance differences amongst SVO groups were not observed. Group performance variance was lowest under the medium budget contract; and within this contract group performance variance for prosocials and individualists was lower than for competitor/mixed groups. The findings indicate that prosocials are less likely than individualists or competitors to free-ride, which has implications for personnel and team structure decisions. High budgets appear to erase the SVO performance effect; however, performance variance is higher under the high than the medium budget contract. Higher performance variance under a high budget without a compensating performance effect suggests the choice of a medium budget for firms. Finally, SVO types produce different levels of performance and performance variance under a medium budget, which enables firms to influence these performance measures by managing SVO. |
