Incentive redesign and collaboration in organizations: Evidence from a natural experiment

Abstract

Incentives are a key feature of organization design, because of their impact on both individual efforts as well as collaboration. A variety of theoretical perspectives exist on the consequences of incentives that promote one or both of these outcomes and the possible tradeoffs between them. In this research we investigate how a change in incentive regimes from individual pay-for performance to fixed-wage affects collaboration within an organization. In particular, we analyze how such a change in incentive regime would affect employees’ 1) effort toward their own tasks, 2) effort toward helping (collaborating with) peers, and finally, 3) peers’ effort toward helping the focal employees. We compare the predictions from three distinct theoretical perspectives -agency theory, equity theory, and the more recent goal framing theory. We exploit a rare natural experimental setting in which a switch from pay-for-performance to fixed-wage took place in a staggered and effectively random manner across employees to explore which theory best explains the data

Biography

Phanish Puranam is Roland Berger Chair Professor of Strategy & Organization Design at INSEAD. He is also Academic Director of INSEAD’s PhD programme.

Professor Puranam studies the design and management of collaboration structures within corporations (i.e. between divisions or departments) as well as between corporations (i.e. alliances and acquisitions). He has published his research in internationally reputed academic journals, and has served in senior editorial roles in such journals. His research has won international awards and competitive grants awarded across the social and natural sciences. He is currently working on a book, Organizing Collaboration: the micro-structural approach to organization design to be published by Oxford University Press. His book on the prospects for India to emerge as a global hub for innovation, “India Inside” (co-authored with Nirmalya Kumar) was published by Harvard Business Review Press in 2012.

Phanish obtained his PhD at the Wharton School of the University of Pennsylvania, and was on the faculty of London Business School between 2001 and 2012, where he was School Chair Professor of Strategy & Entrepreneurship, chaired the School’s PhD programme and co-directed the Aditya Birla India Centre. He joined INSEAD in September 2012. In 2011 he was listed among the “World’s 40 best business school professors under the age of 40” by Poets &Quants. In 2013, he was included in the “50 Most Influential Business Professors” worldwide by MBA rankings.net, and among the top 50 management thinkers of Indian origin by Thinkers50 India in August 2013.’