1 Team incentives and performance: Evidence from a retail chain 1

Abstract: There is substantial field evidence that incentive pay increases the performance of workers when individual performance is measurable. Comparable evidence for teams, however, is scarce. We fill this gap by a randomized experiment on team incentives in a retail chain of roughly 200 shops and 1200 employees. It is technologically impossible to measure individual performance, but the firm measures team (shop) performance along various dimensions. Using stratified randomization, we introduced a team bonus conditioned on sales targets fixed well before the team incentive was discussed. Treated shops increase their sales on average by around three percent, wages increase by around two percent on average (and up to 13 percent). The team incentive works best for (i) shops in larger towns and cities where arguably the marginal productivity of effort is highest; (ii) shops with younger employees, for whom the marginal costs of effort is likely to be lowest, and (iii) shops that did not reach their targets regularly before the introduction of the bonus, for whom the effect of effort on the marginal probability of success is likely to be largest