Determinants of Incentive Intensity in Group-Based Rewards

Abstract

The incentive intensity of rewards (the individual marginal gains in pay triggered by increased performance) has been linked to higher effort and the attraction of talent. Determinants of incentive intensity for individual rewards have been widely examined, but determinants of incentive intensity for group rewards remain unexplored. The authors used agency theory to test such determinants in 663 group-based pay plans. Incentive intensity was higher when groups were small, when plans did not need to measure quality, and when management participation was high. Plans embedded in small firms and plans with longevity had higher incentive intensity.