Article: Monday 20 September
Running and encouraging a productive team usually means granting team managers the responsibility of managing employees’ performances and allocating their bonuses.
At the same time, organisations increasingly create conditions that enable team members to monitor and regulate their own work through peer monitoring and self-management, for example by adopting open-office policies that remove physical barriers between work spaces.
But be careful how you use these two methods, particularly if you integrate them, because they don’t always complement each other. Different control mechanisms interact and can have counterproductive effects – that’s the conclusion from research by Dr Florian Elsinger from Rotterdam School of Management, Erasmus University (RSM). Dr Elsinger’s research was recently published in his paper Discretionary bonus pools, mutual monitoring, and employees’ influence activities: An experimental investigation in Accounting, Organizations and Society. It helps organisations understand how to design performance management and control systems that encourage genuine contributions and effective teamwork.
Dr Elsinger observed that under conditions that facilitate peer-based monitoring, employees use it to coordinate more effectively among themselves: the better they can observe one another’s activities, the more they increase productive effort, contributing to the output of their team. However, peer-based monitoring is most effective when supervisors have only narrow discretion over bonus allocations, with bonuses largely allocated equally or according to other predefined rules. When supervisors have more discretion, employees have greater reason to spend time and effort trying to influence their supervisor’s bonus decision in their favour rather than focusing on more productive activities that contribute to the output of the team.
When supervisors have wide discretion over bonus allocations, employees shift their attention from improving team performance towards influencing the supervisor’s bonus decisions, regardless of the degree of peer monitoring. Employees who see their colleagues doing something to influence the supervisor’s bonus decisions become more likely to adopt similar behaviour themselves. The activity then becomes increasingly common within teams and diverts effort away from productive contributions. It actually undermines team cooperation and reduces the output of the team, particularly when conditions make peer monitoring easier.
In short, rather than reinforcing one another, the method that grants supervisors wide discretion over bonus allocations undermines the benefits of employees using peer-based self-management by redirecting their attention away from team coordination, and towards shaping supervisors’ bonus decisions in their own favour.
“My research shows that combining these two control mechanisms – peer-based monitoring and discretionary bonus allocations – can unintentionally encourage unproductive influence activities in teams, undermining the benefits of both approaches.
“My research helps organisations understand how to design performance management and control systems for productive and positive work environments that encourage genuine contributions and effective teamwork. By designing these systems more effectively, organisations can improve efficiency while creating more supportive and engaging workplaces.”
Dr Elsinger recommends that organisations investing in workplace environments that promote peer monitoring and self-management should consider limiting supervisors’ discretion over bonus allocations. “This allows employees to focus on coordinating with one another and contributing to team success rather than competing for the supervisor’s attention.
“Conversely, if organisations rely primarily on supervisors having wide discretion over bonus allocations, they should be aware that this can create incentives for unproductive influence activities, potentially undermining rather than enhancing team output.
“The effectiveness of supervisor discretion ultimately depends on supervisors’ ability and willingness to accurately identify and reward behaviours that contribute to team and organisational success.”
“Performance management and control systems should be designed as an integrated whole. Combining effective practices does not necessarily lead to better outcomes,” he recommended.
Dr Elsinger drew his conclusions from a controlled laboratory experiment in which several teams of two employees and one supervisor worked together over multiple rounds of decisions. Employees decided how much effort to devote to productive work that increased team output, and how much effort to devote to influence activities aimed at increasing their visibility and shaping their supervisor’s decision to allocate bonuses in their favour without contributing to team output. Teams were rewarded from a pooled bonus fund that grew with increased team output. Supervisors had some discretion to allocate this pooled bonus between the two employees based on their observations and impressions of each employee’s contribution to team output.
The experiment varied how much discretion supervisors had over bonus allocations; either a small portion of the bonus pool or a larger portion, with the remainder allocated equally. The experiment also varied the degree to which employees could monitor each other’s activities, either allowing them to see peers’ productive effort and unproductive influence activities, or not allowing them to see productive and unproductive activities.
Read Dr Elsinger’s full research paper: Discretionary bonus pools, mutual monitoring, and employees’ influence activities: An experimental investigation in Accounting, Organizations and Society.
Science Communication and Media Officer
Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top-ranked business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become to become critical, creative, caring and collaborative thinkers and doers.
