End of year individual bonuses found to be counter-productive

26 November 2015

New research published in the Journal of Business Research has cast doubt on the benefits of individual bonuses, recommending end of year bonuses be based on group performance

A championship team beats a team of champions chosen on the basis of individual performance.
Professor Ian Wilkinson

An international team of researchers has found it makes better business sense to reward team performance rather than providing individuals bonuses.

The findings cast doubt on current practices of many businesses which tend to focus on individual-based rewards.

Published in the Journal of Business Research, the study was conducted by Dr Dan Ladley from the University of Leicester, Honorary Professor Ian Wilkinson from the University of Sydney Business School and Professor Louise Young from Western Sydney University School of Business.

Modelling different types of group situations and conducting computer experiments, the team examined individual- versus group-based reward systems.

Professor Wilkinson from the University of Sydney Business School said the findings recommend a shift away from purely individual-based incentive and reward systems to group-based systems that reflect the complex interdependencies among people working in a team.

“A championship team beats a team of champions chosen on the basis of individual performance,” Professor Wilkinson said.

“Take sports: the Wallabies would be no good if everyone was out for themselves and wanted to score tries. Likewise if the Socceroos only valued those that scored goals and ignored and devalued the roles of others that set up the opportunities to score, they would have similar results. So it is in business.”

Evolution biology influences business research

Inspired by theories of group and individual’s selection in biology, the study used modelling based on past experiments in breeding high performing egg-laying hens.

In particular, researchers took inspiration from the work of evolutionary biologist William Muir, who pursued a unique approach by breeding from all hens in the best laying cages and not just the best layers. This quickly produced ‘kind friendly chickens’ that socialised well, had normal life spans and produced better quality eggs.

“We applied these evolutionary theories to work groups by building computer simulations that modelled the interactions of entities which, over time, either co-operated as groups or operated in self-interest,” says Professor Louise Young, from the Western Sydney University’s School of Business.

“We examined the effects of individual and group rewards for more than 14,000 types of interaction games to mimic different types of group situations.

“In most situations, group rewards produce better performing individuals than individual rewards, with these high performers living in high-performing cooperative groups”.

Another surprising result to emerge from the research was that the worst performing individuals in group interactions may actually benefit the team’s overall performance.

“People often think of low-performing individuals as free riders.  But they are not, they are integral to the functioning of the group as a whole,” said Professor Wilkinson.  

“We called them self-sacrificers because they helped the group at their own expense. We wonder how many of these people are around and not recognised or valued.”