When you are hiring someone, you are probably mostly focusing on how well they are likely to perform on the job. However, if you are hiring people who will be working in teams (i.e., most people!), you should also consider how much they will contribute to team performance.
In a prior blog post using the NBA as a case study, I have shown that good team players are under-compensated. Here, I want to discuss how team performance influences individual employees: Ultimately, what is the value of a high-performing team?
Performance of New Recruits Increases
If you have put together a high-performing team, will that stimulate new team members to perform better? Will peer effects work to improve performance? A study published in the prestigious journal Science that examined over 34 distinct studies of peer effects found that on average, when peers are 10 percent more productive, each worker is about 1 percent more productive. It is worthwhile to create highly productive teams because this productivity will spill over to new recruits. Over time, recruiting high-performing people will increase the performance of the whole team.
Cooperative Teams Perform Better
The study also found that the positive effect of peers on performance is diminished by competition. In teams where there is a lot of rivalry, the positive effect of team performance on each worker is diminished. When people see each other as rivals, they are less likely to learn from each other or cooperate. On the other hand, in the presence of group pay incentives, positive peer effects were even larger. When the whole team stands to gain from individual efforts, workers are more likely to increase each other’s performance.
Increased Compensation Keeps Teams Together
A high-performing team is not just the sum of individual performance. Instead, employees stimulate each other to perform better. Therefore, in order to keep the team together and avoid employee attrition, it can make sense to increase everyone’s pay. Many employers pay an employee more when they are part of a high-performing team – especially in workplaces where employees can easily observe each other’s performance. So, to continue reaping the benefits of a high performing team, consider increasing compensation. This will both attract better employees and keep the high-performing team together.
Ioana Marinescu is an assistant professor in economics at the University of Chicago Harris School of Public Policy. Her research focuses on understanding labor markets. She has been collaborating on data and research projects with CareerBuilder and she is especially interested in how to get the right people to work in the right jobs. You can follow her on twitter @mioana and check out her research on her website, marinescu.eu.