Clara X. Chen, Michael G. Williamson, and Flora H. Zhou
Reward system design and group creativity: An experimental investigation
The Accounting Review | Volume 87, Issue 6 (Nov 2012), 1885–1911

A challenge for organizations engaged in collaborative creative efforts is designing performance evaluation and reward systems to promote group creativity. In designing such systems, managers can face two important decisions:

  1. whether to use group-based or individual-based measure of creativity;
  2. whether to make pay an increasing function of the creativity measure (piece-rate) or contingent on competition (tournament).
In this study, we examine whether moving from the piece-rate to the tournament form of compensation better promotes group creativity across environments where individuals receive pay based on either
  1. the creativity of the group's solution, or
  2. the creativity of their individual input to the group's solution.

Should firms reward teams or employees?

Drawing on theory from psychology, we develop a process model suggesting that group-based tournament pay helps increase group creativity. Specifically, when a group feels challenged or threatened by outsiders such as other groups competing with it for an organization's scarce resources, members feel a greater sense of cohesion or solidarity with one another. In more cohesive groups, members will not only more freely share their ideas, but they will also exert the cognitive efforts necessary to process, synthesize, and build on each other's ideas, which can ultimately enhance the creativity of a group's solution.

By contrast, research suggests that intragroup competition sparked by individual tournaments motivates more independent individual efforts than individual piece-rate pay. These individual efforts, however, are unlikely to facilitate group cohesion and collaborative efforts among group members, which are essential for group creativity.

Therefore, we predict that group tournament pay will increase the efficacy of creativity-contingent incentives relative to group piece-rate pay, but individual tournament pay will not increase the efficacy of creativity-contingent incentives relative to individual piece-rate pay. Figure 1 summarizes our predictions.

1: Process model


To test our predictions, we recruited 180 undergraduate student volunteers from upper-level business classes of a large state university and randomly assigned them to groups of three to participate in one of fourteen 75-minute laboratory experiments. In the experiment, three-person groups of undergraduate students developed a creative solution (i.e., a solution that is “original, innovative, and implementable within a reasonable budget”) to an assigned campus problem. During the idea generation and development phase, groups utilized a computer program that allowed participants to easily generate new ideas and develop others' and individuals' own ideas. Groups then selected one of the developed ideas to serve as their group solution.

We varied two factors between subjects at two levels each. First, we vary the level of incentives by tying participant pay to a measure of either the creativity of the group's solution or the creativity of individual input to the group's solution, both as assessed by an independent panel of three raters. That is, half of the participant-groups received compensation based on the creativity of their group's solution. The other half received compensation based on the creativity of their individual input to the group's solution.

Piece-rate or tournament?

Second, we vary the form of incentives by providing participants with either a linear piece-rate based on their assigned measure or a winner-take-all tournament. That is, we paid half of our participant-groups a linear piece-rate based on their assigned performance measure. The other half of our participants received tournament pay where the participant or group performing best among three competitors received the highest compensation. Under the winner-take-all tournament, participants rewarded based on group creativity competed against two other groups in their session (i.e., an intergroup tournament), and participants rewarded based on individual creativity competed against the two other individuals in their group (i.e., an intragroup tournament). Across all four conditions, we held average participant compensation constant.

Rewarding teams rather than individuals enhances cohesion and creativity

Our results support our predictions. We find that group tournament pay leads to more creative group solutions than group piece-rate pay. We further show that this result is partially driven by group cohesion, which captures group members' psychological bond, openness to each other's ideas, and the extent that group members feel united in achieving group objectives. By contrast, we find that individual tournament pay fails to generate more creative group solutions relative to individual piece-rate pay, either in our initial experiment where we rewarded individuals based solely on the creativity of their inputs to the selected group solution or in a supplemental experiment where we rewarded individuals based on the creativity of their input to all group ideas. Table 1 summarizes our results.

1: Group creativity ratings by condition
Tournament Piece-rate
Group Compensation 5.8 5.1
Individual Compensation 4.8 5.5
In a tournament, the group solution is more creative when groups rather than individuals are compensated. Under piece-rate compensation, the opposite is the case.

In addition, we also explore how reward system design affects within-group interactions in the process of generating initial ideas, developing these ideas, and selecting one of these ideas as the group solution. While groups across all conditions consider a similar number/diversity of initial ideas and exhibit similar propensities to select their most creative idea as the group solution, we observe important differences in how groups develop their ideas. On the one hand, group tournament pay increases the extent to which group members build on each other's thoughts and ideas when developing proposals relative to those in the group piece-rate condition. On the other hand, individual tournament pay increases the extent to which individuals build on their own thoughts and ideas relative to the average of the other conditions, but these independent individual efforts do not appear to enhance individual or group creativity.

Our research contributes to a better understanding of observations from practice suggesting that organizations desiring group creativity often induce intergroup competition. For example, innovative companies such as Johnson & Johnson and Procter & Gamble invest heavily in competitive budgeting systems rewarding members of the most innovative project teams with greater funding and pay. Our findings also contribute to a better understanding of academic practices in that research teams and universities are becoming increasingly reliant on competitive grants for the funding of innovative projects. Beyond formal organizational practices, our results also provide potential insight with respect to the recent trend of “crowdsourcing.” Here, organizations make open calls to groups of people requesting creative solutions to important problems and often pay groups with the most innovative solution. For example, InnoCentive, launched with funding from Eli Lilly, provides a platform where companies such as Boeing and Dupont post pressing R&D challenges to the scientific community and provide financial rewards to teams with the best solutions.

More generally, our research highlights the importance of gaining a better understanding of linkages between performance evaluation and reward system design and creativity in group settings. Our existing knowledge of these linkages comes predominantly from individual settings where research often suggests reward system design has little impact on creativity. Our results are consistent with this research, suggesting that simply encouraging individual group members to independently work harder at being creative may not lead to the desired result. However, our results suggest that performance evaluation and reward systems can play a vital role in promoting group creativity by encouraging individual employees to collaborate and build on the diverse ideas of others.

Marza Farrukh Baig (1545–1615): Babur Receives a Courtier. India and Persia, 1589.. Influenced by Persian miniatures, the Moghul (aka Mughal) miniature style of painting required amazing attention to tiny details and immense amounts of time. The brilliant red, green, and blue colors were also influenced by their Persian predecessors. Common themes were Mughal nobility and animals, shown in a realistic and secular way. The above piece is mounted in Rawdat al-Safa, a Persian history book of Islam and Persia. The best private collection of Moghul paintings is in the Cleveland Museum of Art. Yes, there is more than Case-Western and Cleveland State in Cleveland!

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