Workshop Series: Paul Brown
Abstract: The objective of this paper is to empirically evaluate the influence of group versus individual reward structures on innovation and performance in a team-based production task and an information-rich environment. In their 1999 Accounting Review article, Drake, Haka and Ravenscroft provided experimental evidence that group compensation is more efficient than individual compensation in a team-based production task and information-rich environment (Activity Based Costing vs. Standard Costing). They proposed that the performance difference was driven largely by group compensation driving increased cooperative innovations, which in turn increased task performance. An explanation for Drake et al.’s (1999) result is their use of a tournament incentive scheme as the type of individual compensation in their experiment. We replicate the relevant part of the Drake et al. (1999) experiment using Australian university students and an individual profit incentive scheme as the basis for individual compensation. Our results, in contrast to Drake et al. (1999), indicate that an individual incentive scheme improves task performance in an information-rich environment. Unlike Drake et al.’s (1999) findings, the evidence suggests that the increase in performance for the individual compensation group is from increased effort, as opposed to more cooperative innovations.
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Paul Brown is a lecturer in the School of Accounting with the Faculty of Business at the University of Technology, Sydney. Paul completed his PhD in the area of Corporate Governance and graduated in September 2009.
Paul's PhD was on the topic 'Group versus Individual Compensation Schemes for Senior Executives and Firm Performance'. Paul's ongoing research program includes investigating the performance consequences of different incentive structures, management practices and labour productivity, the economics of Greenhouse Gas trading and management.