Managing Team Performance:

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Managing Team Performance:

Interdependence, Goals and Rewards

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CIP-DATA LIBRARY TECHNISCHE UNIVERSITEIT EINDHOVEN Vijfeijken, Herman T.G.A. van

Managing team performance : interdependence, goals and rewards / by Herman T.G.A. van Vijfeijken. – Eindhoven : Technische Universiteit Eindhoven, 2004. – Proefschrift. – ISBN 90-386-1808-5

NUR 807

Keywords: Team performance management / Team pay for performance / Team performance goals / Interdependence / Goal interdependence / Reward interdependence This research has benefited from the financial support of the SOBU, the Cooperation Centre of Brabant Universities.

Printed by Universiteitdrukkerij Technische Universiteit Eindhoven Painting on the cover Mrs. A.H.H.M. van Vijfeijken-Seesing Cover design Mr. P. Verspaget

All rights reserved. No part of this publication may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the author.

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Managing Team Performance:

Interdependence, Goals and Rewards

PROEFSCHRIFT

ter verkrijging van de graad van doctor aan de Technische Universiteit Eindhoven, op gezag van de Rector Magnificus, prof.dr. R.A. van Santen, voor een commissie

aangewezen door het College voor Promoties in het openbaar te verdedigen op donderdag 5 februari 2004 om 16.00 uur

door

Herman Theodoor Gerard Antoine van Vijfeijken

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Dit proefschrift is goedgekeurd door de promotoren: prof.dr. J.A. Algera

en

prof.dr. H. Thierry

Copromotor:

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Acknowledgements

This PhD-project has been very instructive and inspiring. I consider it a great privilege that I have had the opportunity to do it. Many people have supported me during this research project and I would like to take this opportunity to thank all of them, although I fear the following list may be incomplete.

I am very much indebted to prof.dr. Jen A. Algera and dr. Harrie van Tuijl for supervising, inspiring and motivating me and for reading and commenting on many texts, all in a professional and pleasant work atmosphere. Similar words hold for Prof.dr. Henk Thierry, who I would like to thank for his intellectual and practical support throughout the project. Further, I am indebted to dr. Ton Korver for some useful discussions in the early stages of this research.

Thanks to all my colleagues inside and outside the department. In the department, I would especially like to thank Ad Kleingeld for his intensive support and inspiration during all stages of the research and for the pleasant times we had in – for instance – Seville and Lisbon. Further I would like to thank Brigitte Claessens, Josette Gevers, Lisette Kanse, Heleen van Mierlo and my roommate Miranda Peeters, my fellow PhD students, who provided distraction and support and with whom I had a wonderful time. I am indebted to Anniek van Bemmelen for helping me out time and again with English grammar problems. Outside the department, I would like to thank the teachers of the PhD-courses and Prof.dr. Michael West, in particular, for the many things I learned from them.

Further, I am grateful to the contact persons at the case study organizations and all the research participants, who have been crucial for project completion.

I am also grateful to ir. Jelle Simons who helped me to collect data, Willem Doesborgh for developing an electronic questionnaire, Jurgen de Koning for assisting me with the lay-out of this dissertation, Tilly de Bruin for her very useful and detailed comments on the final draft of this dissertation, and my mother for making the beautiful painting for the cover. Last but not least, I would like to thank my dear Isabel for her warm support and encouragement, my parents for their confidence in me, and family and friends for the interest and distraction which they provided, thanks!

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1 Outline of the Study

1.1 Introduction

In today's organization two trends are visible. First, there is a trend towards organizing the work around teams rather than around individuals: in many organizations teams have become the main building block (Guzzo & Shea, 1992; Kozlowski & Bell, 2003). A second trend is that more and more organizations have developed some kind of pay for performance plan, which is usually centred around the individual as opposed to the team (Prendergast, 1999). So, on the one hand, employees are stimulated to work together by organizing the work around teams, while, on the other hand, it is mainly the individual work that is stimulated via individual level rewards. These trends may conflict and thus reduce the effectiveness of a pay for performance plan. This raises the question how to design a pay for performance plan that overcomes these problems, which is the topic of this dissertation. This question is not easy to answer, as will emerge from the following example.1

After a reorganization in the late 90s, a large Dutch company is completely built around teams. Performance goals are defined at the individual, team and organizational level. The organization has a pay for performance system that is based on ranking. The pay for performance plan has indicators at the individual level and the organizational level, thereby reinforcing the individual and organizational goals. The pay for performance plan does not offer an equivalent for the team level performance goals.

The organization wants to bridge this gap by expanding the current pay for performance plan with some sort of team bonus. In doing so, it ran into a number of problems, like: Do we want a uniform plan or a team-specific plan? Advantages of a uniform plan may include the higher transparency and lower clerical burden. However, a team-specific plan is better able to support team-specific goals. How do we combine pay for performance at team level with the pay for performance at individual level, is it necessary for both to exist, or should the individual pay for performance be replaced by a counterpart at team level? Related to this latter point is the question whether the mix between individual and team level rewards should be the same for all teams, or should it vary across teams, and if so, what factors play a role in this decision? And finally, how do we apply the ranking system at team level, is it possible to rank teams against each other?

All in all, there are many factors that play a role in the design of a pay for performance plan for teams, which makes the question how to design such a plan difficult to answer. This

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difficulty of designing a pay for performance plan for teams can also be inferred from the reviews of Thierry (2002a, 2002b) and Prendergast (1999), who both found mixed results for the effectiveness of pay for performance plans for teams, as opposed to predominantly positive effects for individual plans.

The aim of this research is to develop a practically applicable prescriptive model for the design of pay for performance plans for teams. The basic ideas underlying the development of a design model are that a pay for performance plan should support the team goals and the goals of individual team members and that it should support the way in which team members need to cooperate for the completion of their work.

The target groups of this dissertation are both managers and scientists. For managers, we hope to develop a practically applicable design tool. For scientists, we hope to contribute to the body of knowledge on team performance management by integrating mono-disciplinary knowledge into a multi-disciplinary design model.

In the course of this chapter, the following topics will be addressed. First, we will have a closer look at the example of the Dutch company and deduce factors that play a role when designing a pay for performance plan for teams. Secondly, the relevant literature on the identified factors will be reviewed, and shortcomings in existing design models will be discussed. The chapter ends with a summary of the findings and a discussion of the outline of this dissertation.

1.2 Problem identification and preliminary design model

The organization in the example encountered a number of problems in the process of designing a pay for performance plan for teams. This section will go more deeply into these problems and try to identify the factors that seem to play a role in the design process. But first, the basic assumption on the role of a pay for performance plan that underlies this research will be further specified.

1.2.1 Team performance management: Goal-setting and pay for performance Pay for performance is a performance management technique that can be explained from various motivational theories, such as the reinforcement theory (Skinner, 1969), the expectancy theory (Vroom, 1964), and also the goal-setting theory (Locke & Latham, 1990). (See Thierry, 2002a, for an extensive overview of motivational theories in relation to compensation.) In this research, it is assumed that a pay for performance plan should support the performance goals of a team and/or an individual team member, thus goal attainment should result in the attainment of a financial reward.

The use of performance goals as a performance management technique is based on the goal-setting theory of Locke & Latham (1990). The principle idea in this theory is that goals can have a direct influence on performance: “performance goals are immediate regulators or causes of task or work performance” (Locke & Latham, 1990, pp. 253). So

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basically, the question is how to combine these different performance management techniques for the performance management of teams. This will be the perspective from which the problem of designing a pay for performance plan for teams will be approached. It will be assumed that the objective of a pay for performance plan is to support the performance goals of a team and individual team members. Having said this, we now turn to the problems identified in the example.

1.2.2 Problem I: Uniform versus team-specific

One of the problems in the example was whether to design a uniform plan or a team-specific plan. Besides more practical issues like the clerical burden a pay for performance plan entails, the fundamental question here is whether it is possible to support team goals, which are by definition team-specific, with a uniform pay for performance plan.

A truly uniform plan (i.e., where the same indicators, weights and targets apply to all teams within the organization) is not likely to be able to support the performance goals of all teams in an organization. A truly team-specific plan (i.e., a pay for performance plan that varies per team on issues such as the number of indicators, type of indicators [e.g. financial/non-financial] and targets, the levels at which indicators are assigned and the weight of indicators) on the other hand, is probably best able to support the team goals, but will result in a much higher clerical burden and an opaque plan, which is not desirable either. Thus, a pay for performance plan should combine elements of these two extremes, but how? (i.e., what should the criterion be?)

Keeping in mind the assumption that a pay for performance plan should support the performance goals, the key issue here is that there should be a clear link between goal attainment and bonus attainment resulting from a pay for performance plan. In terms of the expectancy theory (Vroom, 1964), this would mean that attainment of a performance goal should be instrumental for the attainment of a (valued) bonus. Ideally, the instrumentality will be one, which would be the case if the performance goal indicators and pay for performance indicators as well as the goals set on those indicators would be the same. However, in practice this is hard to realize.

A less stringent requirement is that the performance goals and the pay for performance indicators should correspond: the higher the correspondence, the stronger the link between goals and rewards. For example, the team performance goal is to increase market share with an x percentage, and the pay for performance indicator is turnover generated in the market where the team operates. Although goals and pay for performance indicators are different, goal attainment will most probably result in a higher score on the pay for performance indicator.

Summarizing, an important criterion for deciding the extent to which a pay for performance plan can be designed uniformly across the organization is the extent to which the

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(team-with one another. In other words, performance goals and pay for performance indicators have to fit together in terms of content. This can only be determined on a case by case basis. If the correspondence is low for some teams, or even worse, if goal and pay indicators conflict with one another, a more team-specific pay for performance plan is desired.

1.2.3 Problem II: Individual versus team rewards

Another problem the organization encountered was related to the optimal proportion of team rewards to individual rewards, i.e. what combination of individual and team rewards is optimal from a team performance management perspective? We suggest to approach this question by looking at the effects of individual and team rewards on team members’ behaviour on the one hand, and on the type of behaviour that is requested for executing the team task on the other hand.

Individual and team rewards, just as goals, are thought to have different effects on team members’ behaviour (e.g. Weldon & Weingart, 1993). Individual rewards stimulate team members to focus on their own tasks, thereby stimulating individualistic behaviour and running the risk of losing sight of the team interests. Team rewards, on the other hand, focus individual team members’ attention on teamwork, thereby stimulating cooperation among team members, which might go at the expense of a focus on individual tasks. Thus, the level of task interdependence plays an important role in determining the mix of individual and team rewards. This relation between task interdependence and type of rewards has been the subject of several studies (e.g. Miller & Hamblin, 1963; and Rosenbaum, Moore, Cotton, Cook, Hiesser & Gray 1980), and will be discussed in the next section.

1.2.4 Problem III: Relative versus absolute distribution

The third problem that appears from the example has to do with the distribution method of rewards. The organization in the example uses a ranking system, which means that, in this case, individual team members are ranked against each other based on their score on some pay for performance indicator. Depending on the relative score, rewards are distributed among team members. From the perspective of an organization, the advantage is that the amount of money to be spent on bonuses can be fixed, which eliminates uncertainty as to the expenses of a pay for performance plan. However, from a perspective of team performance management, this distribution method has one large disadvantage, as it makes the team members who are ranked against each other negatively interdependent, thereby creating competition.

Creating competition between team members who have to cooperate for the completion of the work is counterproductive. If teams are ranked against one another, instead of team members, competition will be created between these teams. This will not cause problems if

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the teams that are ranked do not need to cooperate for the completion of the work (e.g., teams in a football competition), however, if these teams depend on one another to complete the work, as will often be the case in an organizational setting, a ranking system may be harmful.

On the other hand, pay for performance plans can create more supportive types of interdependence that support the behaviour required by the work at hand (e.g. Miller & Hamblin, 1963; Rosenbaum et al., 1980). If, for example, a team is characterized by a high level of task interdependence, which forces team members to work together for task completion, a pay for performance plan should stimulate cooperation among team members, by making team members positively interdependent on one another to attain a pay for performance bonus. So the interdependence created by a pay for performance plan should be congruent with the level of task interdependence.

1.2.5 Problem IV: Goals and pay for performance, cooperation or competition? Closely related to the former problem, a final problem that emerges from the example is how to combine goals and pay for performance. In the example, team goals are present that create positive interdependence between team members, thereby stimulating team members to work together. The current pay for performance plan, on the other hand, creates competition between team members, thereby giving the opposite signal with regard to the desired behaviour. So the interdependence created by a pay for performance plan should fit with the interdependence created by the performance goals.

1.2.6 A prescriptive model

Summarizing, the effectiveness of a pay for performance plan for teams seems to be dependent on two main design questions:

1. How to design pay for performance indicators that fit with the team goals and goals of individual team members in terms of content, i.e. how to attain content fit?

2. How to assign the pay for performance indicators to teams and/or individual team members, i.e. what type of reward interdependence is optimal given the levels of goal and task interdependence?

These questions, which refer to the effectiveness of combinations of specific characteristics of a team task, performance goals, and a pay for performance plan, are depicted in Figure 1.1. The general idea behind this model is that if (a) the goal and pay indicators fit together in terms of content; and if (b) the levels of goal and reward interdependence fit together in terms of signals they give on desired behaviour; and if (c) the levels of goal and reward interdependence fit with the level of task interdependence, the combination is more effective than if one or more of these fit-requirements are not satisfied. Thus, the extent of

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variables in this model, whereas the dependent variable refers to effects of variation on these independent variables, i.e. the effectiveness of the combination of the three elements. This combination may impact many elements of effectiveness, such as team performance, team interaction processes and affective responses. In this research, we are primarily interested in team interaction processes and outcomes. To reflect the practical question that underlies this research, the dependent variable is operationalized as the interaction processes between team members (e.g., cooperation and competition) and other outcome-related evaluations of team members (e.g., motivation) particularly with respect to aspects of a pay for performance plan.

Based on the most often encountered criterion variables in research on the effectiveness of team pay for performance plans (see reviews of Thierry, 1987; DeMateo Eby & Sundstrom, 1998; Honeywell-Johnson & Dickinson, 1999), and on definitions of team effectiveness by Hackman (1987) and McGrath (1964), two (related) effectiveness criteria can be distinguished, namely:

1. The extent to which the plan enhances team interaction processes that facilitate team performance, such as cooperation, and the extent to which the plan motivates and satisfies team members.

2. The extent to which the plan enhances team performance, where performance can both be measured with ‘objective’ variables such as output or financial results, or with more ‘subjective’ variables as internal and external customer satisfaction.

The question now is how to design a pay for performance plan so that these different constructs fit together. It appears from Figure 1.1 that the fit between task, goal and reward interdependence plays a prominent role in the design of a pay for performance plan for teams. At present, a complete theoretical framework on optimal combinations of these constructs is lacking, although elements of such a theory of fit exist.

In the next section the literature on optimal combinations of task, goal and reward interdependence will be reviewed, and shortcomings in existing models of fit will be discussed.

Figure 1.1. Proposed prescriptive model

Performance Management System

Effectiveness Team • task inter-dependence Performance goals • goal inter-dependence • content of indicator

Pay for performance

• reward inter-dependence

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1.3 Review of research

In this section, the existing research on effective combinations of task and goal interdependence, task and reward interdependence, and goal and reward interdependence will be discussed. The reason for discussing them two by two is that to date, these three constructs have not been studied in conjunction, even though the importance of doing so has been acknowledged (Hollensbe & Guthrie, 2000). A first attempt to overcome this hiatus in the existing body of knowledge will be proposed, but first the three interdependence constructs will be defined.

1.3.1 Definitions Task interdependence

Task interdependence reflects the extent to which team members have to exchange information and/or means for the completion of their contribution to the team task (e.g. Thompson, 1967). Task interdependence can be classified as low or high.2 When the level of task interdependence is high, the team members have to cooperate (exchange information and means) for the completion of the team task. An example would be a new car design team, where each team member adds in his3 specific knowledge. In this situation, team members have to exchange information on each other’s specific knowledge to integrate all of this successfully into the team’s end product: a car design.

When the level of task interdependence is low, team members hardly need to exchange information and/or means to complete the team task. An example would be a team of telemarketeers who have to complete a specific order in time. Team members hardly need to exchange information or means for the completion of their part of the team task, i.e. making phone calls. In this situation, a low level of task interdependence may result from the exchange of specific clues on how to work more efficiently and from other coordinating activities, such as who is calling whom, work schedules, etc.

Goal interdependence

Goal interdependence is the interdependence created by the way in which the attainment of performance goals of team members is related to the attainment of performance goals by other team members.

Goal interdependence can vary from negative to positive. In the case of positive goal interdependence, the attainment of one’s individual goals is positively influenced by the attainment of goals by other team members. Logically, team goals create positive goal

2_{We realize that one could think of situations in which team members are negatively task interdependent,} however, this research will be confined to the practical relevant and widely used distinction between low and high

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interdependence as well, because individual team members are positively interdependent on one another for the attainment of this goal. In the case of negative interdependence, the attainment of one’s individual goals is negatively influenced by the attainment of goals by other team members.

Reward interdependence

Reward interdependence is the interdependence created by the way in which the pay indicators of a team member are related to the pay indicators of other team members. The type of reward interdependence is determined by the type of pay for performance plan, which means that changes in the level of reward interdependence can be realized by changing the pay for performance plan.

Reward interdependence can vary from negative to positive. An example of positive reward interdependence is when the attainment of a team member’s rewards is positively influenced by the attainment of rewards by other team members. This would be the case when a reward is based upon team performance: if my colleague team members receive a bonus, I will receive a bonus as well. However, positive reward interdependence can also result from individual pay indicators that are positively related (For more details, see chapters 2, section 2.2.2 and 3, section 3.2.2).

An example of negative reward interdependence would be a ranking system in which the bonus is based on the relative performance of the team members: high performance by other team members reduces one’s own possibilities to earn a bonus.

1.3.2 Research on effective combinations of interdependence: Task and goal interdependence, and task and reward interdependence

Most research on effective combinations of task and goal interdependence or task and reward interdependence has been conducted under the label of task and outcome interdependence (see review by Van der Vegt & Van de Vliert, 2002). The term outcome interdependence encompasses, among others, goal and reward interdependence (see Figure 1.2). It is generally defined as the way in which team members are interdependent for the attainment of “significant outcomes” (Wageman, 1995). These significant outcomes can range from goals and feedback (Van der Vegt, Emans & Van de Vliert, 2000) to “pay, time off, recognition and survival” (Shea & Guzzo, 1987). Thus, outcome interdependence encompasses many different outcomes.

Even though outcome interdependence is manipulated (in experimental studies) or determined (in cross-sectional studies) by different outcomes, research shows a consistent pattern, especially for the high task interdependence condition (see review by Van der Vegt & Van de Vliert, 2002). In situations of high task interdependence, positive outcome interdependence is more effective for the realization of the outcome variables than other types of outcome interdependence. In situations of low task interdependence, the results are

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somewhat less consistent, but in general both neutral and slightly positive outcome interdependence are more effective than other types of outcome interdependence for the realization of the outcome variables. These results are both based on studies where outcome interdependence is manipulated via rewards (e.g. Miller & Hamblin, 1963; Rosenbaum et al., 1980; Wageman, 1995, Wageman & Baker, 1997) or via goals and feedback (e.g. Saaverdra et al., 1993; Van der Vegt et al., 2000).

Figure 1.2. Outcome interdependence unravelled

Problems with interventions guidelines based on existing research

Based on these results, design guidelines are formulated on effective combinations of task and outcome interdependence (e.g. Wageman, 1995; Van der Vegt et al., 2002). The guidelines are shown in Table 1.1. The problem with these kinds of guidelines is that they do not provide guidelines on how to combine goals and rewards, since the term outcome interdependence encompasses both goals and rewards.

Van der Vegt et al. (2002) give an example of a possible intervention to increase outcome interdependence. They propose creating team goals and team feedback, for example by developing a productivity measurement and enhancement system (ProMES, Pritchard, Jones, Roth, Stuebing & Ekeberg, 1989; Pritchard, 1995). In addition, a team bonus could be provided to the team members. Though this intervention suggestion sounds plausible, it does not provide much grip in a situation where an organization is considering to design a pay for performance plan.

If we go back, for example, to the organization in the introductory example, it can be seen that the already existing team goals create positive outcome interdependence. The existing pay for performance plan, on the other hand, creates negative outcome interdependence (as a result of the ranking system), and a pay for performance plan at team level will probably create negative interdependence between teams. So the question that remains unanswered here by the existing intervention guidelines, is how to combine the different types of interdependence created by goals and rewards respectively.

To overcome this problem, we propose to specify this design model one step further, by unravelling outcome interdependence into the different types of interdependence created by

outcome interdependence

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studying goal and reward interdependence (see Figure 1.2). As a result, the number of combinations increases by a factor two, resulting in eight (2 x 2 x 2) different combinations of task, goal and reward interdependence.

In the next section these eight combinations will be further discussed, and related to existing research. Further, from this point onward the distinction between goal and reward interdependence will be made, instead of using the term outcome interdependence.

Table 1.1. Type of design guidelines based on Wageman (1995) and Van der Vegt et al. (2002)

Task interdependence (TI)

Outcome interdependence (OI) Intervention

high positivea no intervention

low slightly positivea (Van der Vegt et al.) or neutral (Wageman)

no intervention

high slightly positive or neutral increase OI or decrease TI

low positive increase TI or decrease OI

Note. a. Wageman and Van der Vegt et al. make a distinction between ‘high’ and ‘low’. For reasons of

consistency with the proposed definitions, the terms positive and slightly positive will be used. 1.3.3 Eight combinations of task, goal and reward interdependence

Assuming that task interdependence can vary from low to high, and goal and reward interdependence from negative to positive, eight combinations of the three constructs can be thought of. To date, these constructs have not been studied in conjunction, but several elements of these eight combinations have been subject to research. In Table 1.2, these studies are inventoried, together with the specific combination that was subject to study. Only studies that pay attention to the combined effects of two interdependence constructs are included. For this reason, the studies of, for example, Campion, Medsker & Higgs (1993) and Campion, Papper & Medsker (1996) are excluded, because they only address the separate effects of task, goal and reward interdependence on team effectiveness. The dependent variables in the studies were all concerned with different elements of team effectiveness (performance, motivation and interaction processes), while most studies, especially experimental studies, concentrated on performance related criteria.

This inventory is based on a preliminary literature search, and serves as a tool for identifying hiatuses in the existing body of knowledge and directions for theory development. Having said this, we will now take a closer look at each of the eight combinations.

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Combination I: High task interdependence and positive goal and reward interdependence Most research on effective combinations of interdependence has included a high task interdependence and positive goal or reward interdependence condition. These studies have consistently shown that positive goal or reward interdependence is more effective than other types of goal or reward interdependence in a high task interdependence situation. For example, Van der Vegt et al. (2000) studied, among other things, the effects of task and goal interdependence on affective responses of technical consultants. Their findings show that a combination of high task interdependence and positive goal interdependence is more effective than a ‘high – slightly positive’ combination. These results are in line with the experimental findings of Saaverda Earley & Van Dyne (1993) and the conclusions of O’Leary-Kelly, Mortocchio & Frink (1994) and Weldon & Weingart (1993) based on their literature reviews.

Gowen (1985) also found that positive goal interdependence was optimal in a situation of high task interdependence. However, positive interdependence created by a team and individual goals is more effective than positive interdependence created by only a team goal. Finally, Mitchell & Silver (1990) found that high task interdependent teams in an independent goal condition performed significantly worse than teams in different types of positive goal interdependent conditions.

In the only field-experiment conducted until now, Wageman, (1995) evaluated the effectiveness of different combinations of task and reward interdependence. Teams of service engineers were categorized into three levels of task interdependence: low (individual tasks), hybrid (both individual and team tasks) and high (team tasks). An intervention in the reward system created positive, slightly positive and neutral outcome interdependence (via team rewards, team plus individual rewards and individual rewards respectively). Wageman (1995) found that teams in the high task interdependence condition and functioning under the positively interdependent reward system were more effective than teams that functioned under either a mixed or purely individual reward system. The finding that positive reward interdependence is optimal in situations of high task interdependence is in line with the results of Miller and Hamblin (1963) and Rosenbaum et al. (1980). Wageman and Baker (1997) did not find differences between reward conditions. At least four laboratory studies have been conducted on optimal combinations of positive goal and reward interdependence (see reviews by Johnson and Johnson, 1989, 1992). These studies consistently show that positive goal interdependence is sufficient to produce higher performance than neutral goal interdependence (purely individual goals), however, the combination of positive goal and reward interdependence is even more effective. Johnson and Johnson (1989, 1992) therefore conclude that the impact of the two interdependence constructs seems to be additive.

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Table 1.2. Eight combinations of task, goal and reward interdependence # TIa GIb RIc Pair Studies

1 high ++ ++ TI-GI

TI-RI

GI-RI

Van der Vegt, Emans & Van de Vliert (2000); Saavedra, Earley & Van Dyne (1993); Mitchell & Silver (1990); O’Leary-Kelly, Mortocchio & Frink (1994); Gowen (1987); Weldon & Weingart, 1993)

Miller & Hamblin (1963); Rosenbaum, at al. (1980); Wageman (1995); Wageman & Baker (1997)

Lew, Mesch, Johnson & Johnson (1986a, 1986b); Mesch, Johnson & Johnson (1989); Mesch, Lew, Johnson & Johnson (1986)

2 high -- -- TI-GI

TI-RI GI-RI

no research known

Miller & Hamblin (1963); Rosenbaum et al. (1980) no research known 3 high ++ -- TI-GI TI-RI GI-RI see 1 see 2 no research known 4 high -- ++ TI-GI TI-RI GI-RI no research known see 1 no research known 5 low ++ ++ TI-GI TI-RI GI-RI

Van der Vegt, et al. (2000); Saavedra et al. (1993); Weldon & Weingart, 1993); Matsui, Kakuyama & Onglatco, (1987)

Miller & Hamblin (1963); Rosenbaum et al. (1980); Wageman (1995); Wageman & Baker (1997)

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6 low -- -- TI-GI TI-RI GI-RI

no research known

Miller & Hamblin (1963); Rosenbaum et al. (1980) see 2 7 low ++ -- TI-GI TI-RI GI-RI see 5 see 6 see 3 8 low -- ++ TI-GI TI-RI GI-RI no research known see 5 see 4

Note. a. task interdependence; b. goal interdependence; c. reward interdependence.

Combination II: High task interdependence and negative goal and reward interdependence In contrast to research on parts of combination I, research on combinations of high task interdependence and negative goal and reward interdependence is rather scarce: two out of three combinations have not been researched. Let us start with research that has been conducted.

The combined effects of high task interdependence and negative reward interdependence has been subject to several researches. Miller & Hamblin (1963) conducted an experiment in which the levels of task interdependence (low/high) and reward interdependence (positive, slightly negative, and negative) were manipulated. They found that in the high task interdependence condition, the teams in the positive reward interdependence condition outperformed the teams in the negative and slightly negative reward interdependence condition, with the slightly negative reward interdependence teams outperforming the teams in the negative reward interdependence condition. These results were replicated by Rosenbaum et al. (1980).

No research on combinations of (high) task interdependence and negative goal interdependence is known to us. However, a very large number of studies has been conducted on the effects of negative interdependent goals on team interaction patterns and effectiveness (see the review by Tjosvold, 1998), in the light of Deutsch’ (1949a, 1949b) theory of cooperation and competition. A possible reason why scholars in this field did not study task and goal interdependence in conjunction, might be that their definition of goal interdependence is very closely related to the concept of task interdependence, which makes studying these concepts together either redundant or very difficult. In this research however, we will study these constructs separately, because we are specifically interested in

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Further, no research on combinations of negative goal and reward interdependence is known to us either, which is not very surprising. After all, evaluating the effectiveness of both competitive goals and a competitive pay for performance plan for the performance management of teams (which, by definition, have to work together up to a certain extent) is almost trivial.

It follows from the discussion of the first two combinations that the existing research on combinations III & IV has been discussed as well. Therefore, combinations III & IV will be discussed in brief.

Combinations III & IV: High task interdependence in combination with positive goal interdependence and negative reward interdependence or vice versa

The research on high task interdependence in combination with either positive or negative goal interdependence has been discussed above, as well as research on high task interdependence in combination with either positive or negative reward interdependence. Further, no research on the effects of combinations of positive goal and negative reward interdependence or vice versa is known to us, which may again be due to the fact that from a theoretical perspective, it seems somewhat trivial to evaluate this combination. Positively interdependent goals in combination with negatively interdependent rewards, for example, give conflicting signals concerning the desired behaviour to team members (cooperation versus competition), which will probably not be effective.

In spite of this rationale, however, a combination of positive interdependent goals and negative interdependent rewards (under varying levels of task interdependence) is not uncommon in practice, as emerged from the introductory example. Can the pay for performance plan be effective in this context? Probably not, but why? Is it because the pay plan enhances competition between team members? Is it because the performance goals do not fit with the type of team work? Is it because the goals conflict with the pay for performance plan, and if yes, on which element: interdependence, content of the indicators or both?

All in all, misfits between different types of interdependence can influence the effectiveness of a pay for performance plan in several ways. Therefore, insight into the (dys)functional effects of this kind of combinations may be very valuable. It may help us understand why some pay for performance plans do not work, and provide directions for interventions. Further, it may provide new insights on the antecedents of negative reactions to pay for performance plans, thereby allowing an interpretation of these reactions in the broader context of team work and performance management. Thus, insight into the effectiveness of these combinations seems valuable, both for evaluating and (re)designing a pay plan. Until now, however, these insights are lacking.

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Combination V: Low task interdependence, and positive goal and reward interdependence Most research on effective combination of interdependence included a low task interdependence and positive goal or reward interdependence condition. These studies consistently showed that this combination is not the most effective one. However, the results on what type of goal or reward interdependence is most effective in a low task interdependence situation are mixed, and vary from no interdependence (e.g. Saavedra et al., 1993; Wageman, 1995), to slightly positive interdependence (e.g. Van der Vegt et al., 2000) or no difference between different types of interdependence (e.g. Miller & Hamblin, 1963).

A closer look at these results reveals that these differences mainly exist between the types of goal and reward interdependence that seem optimal in situations of low task interdependence. The isolated findings on optimal types of either goal or reward interdependence in situations of low task interdependence are quite consistent (see Table 1.3). The table shows that in situations of low task interdependence, slightly positive goal interdependence seems optimal. On the other hand, the findings on optimal types of reward interdependence show that there does not seem to be a type of reward interdependence that is more optimal than others.

The study of Matsui et al. (1987) sheds some light on why slightly positive goal interdependence seems optimal in this specific task situation. In their study, the teams in the slightly positive interdependence condition (individual goal plus team goal) outperformed the teams in either the independent condition (individual goal) or the positive interdependence condition (team goal). According to the authors, teams that were only confronted with a team goal were outperformed, because the task in the study (a numerical counting task) only demanded stimulation of the motivation mechanisms, i.e. direction, effort and persistence (Locke, Shaw, Saari & Latham, 1981). The team members did not need to cooperate to complete the task, so the development of cooperation strategies was not necessary. The authors conclude that the motivational effects of goals in low task interdependent situations are cumulative, so two goals result in a higher level of motivation than one goal. This explains why the combined goal condition also outperformed the individual goal condition.

According to Miller and Hamblin (1963), a reason for not finding differences in effectiveness among different types of reward interdependence in a low task interdependence condition is that in this condition negative reward interdependence cannot result in lowered performance. They argue that negative reward interdependence results in competitive behaviours, such as ‘blocking’ other team members from being productive, which results in lowered effectiveness in high task interdependence situations. However, in the case of low task interdependence, a blocking strategy is hard to execute, simply because team members are not dependent (or only to a limited extent) on each other for completing

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Finally, for the research on combinations of positive goal and reward interdependence we refer to the discussion under combination I.

Table 1.3. Overview of the research findings on optimal types of goal and reward interdependence in situations of low task interdependence

Studies on: Findings: optimal type of interdependence

in situations of low task interdependence goal interdependence

Saavedra at al. (1993) independent goals Van der Vegt et al. (2000); Weldon &

Weingart (1993); Matsui et al. (1987)

slightly positive goal interdependence reward interdependence

Wageman (1995) independent

Miller & Hamblin (1963), Rosenbaum et al. (1980)

no difference between negative, slightly negative or positive reward

interdependence

Wageman & Baker (1997) no difference between neutral, slightly positive or positive reward

interdependence

Combination VI: Low task interdependence and negative goal and reward interdependence Like combination II, research on combinations of low task interdependence and negative goal and reward interdependence is rather scarce. Research on negative goal interdependence in situations of low task interdependence, and negative goal and reward interdependence has not been conducted (see ‘Combination II’).

With regard to negative reward interdependence, Miller and Hamblin (1963) found no differences across the three reward interdependence conditions (positive, slightly negative and negative) for teams in the low task interdependence condition. These results were replicated by Rosenbaum et al. (1980).

It follows from the preceding discussion of combinations V & VI, that the existing research on combinations VII & VIII has been discussed as well. Therefore, combinations VII & VIII will be discussed in brief.

Combination VII & VIII: Low task interdependence in combination with positive goal interdependence and negative reward interdependence or vice versa

Research on elements of these two combinations has been discussed above. From the discussion of combination III & IV, it appears that research on positive goal interdependence and negative rewarding interdependence, or vice versa, is lacking, but that

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insight into these combinations seems valuable (see ‘Combination III & IV’ for a more detailed discussion).

1.4 Summing up

The preceding discussion reveals that elements of a theory of fit exist, but it also shows that the existing body of knowledge does not provide enough grip for the design of pay for performance plans for teams.

The core of what we already know is the so-called “congruence hypothesis” (Van der Vegt et al., 2002), which states that ‘high-high’ and ‘low-low’ combinations of task and outcome interdependence are more effective than other combinations of these constructs. However, a closer look at these design guidelines reveals that these, rather broadly formulated, guidelines leave a number of issues undiscussed, which seem critical in the light of designing pay for performance plans for teams.

First, no distinction is made between goal and reward interdependence, thereby leaving the question how to combine pay for performance with performance goals unanswered. We therefore plead for unravelling outcome interdependence into the different interdependences created by the performance management techniques one wants to combine, which are goal and reward interdependence in this case.

Secondly, when applying the distinction between goal and reward interdependence to the existing research, it appears that information on, presumably, ineffective combinations of goal and reward interdependence is lacking, while these combinations appear to be quite common in practice. For an example, we again refer to the introductory case, where positive interdependent goals were combined with negative interdependent rewards. In our opinion, more insight into the functional and dysfunctional effects of these kinds of combinations may be very valuable, as it may provide new insights into the antecedents of negative reactions to pay for performance plans, which in turn facilitates an analysis of an ineffective pay plan in the broader context of team work and performance management. Thirdly, although the design guidelines on optimal combinations of task and outcome interdependence suggest otherwise, the findings on optimal combinations of goals and rewards in situations of low task interdependence are mixed, and vary from independent to slightly positive. Thus, consistent findings on effective combinations of task, goal and reward interdependence are restricted to high task interdependence situations.

Fourthly, we argued that goals and pay for performance should also fit in terms of content. Thus, a sole focus on creating fit between the interdependences that stem from goals and pay for performance is not enough. Hypothetically, such a limited focus may result in a pay plan that creates a type of interdependence that perfectly fits with the interdependence created by performance goals, thus eliciting the same types of behaviour, but where the

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An example would be a team where the team performance goals are to increase market share and brand recognition, and where the team pay for performance plan concentrates on cost management, with such indicators as budgets attainment and executing cost-reduction programs. Since both the performance goals and the pay indicators are set at team level, they respectively create positive goal and reward interdependence, so the performance goals and pay indicators fit together in terms of the type of interdependence they create. However, the content of the goal and pay indicators clearly conflicts: increasing market share and brand recognition means, for example, investing in marketing campaigns and selling products or services at low margins, while both these actions will be counterproductive for the scores on the pay for performance indicators, because these activities go hand in hand with cost increases. Thus, although the performance goals and pay indicators fit in terms of the interdependence they create, they conflict in terms of their content.

Fifthly, most research on effective combinations of interdependence is conducted in laboratory settings, and the existing field studies are mostly conducted via surveys. These research approaches have resulted in knowledge that is of a rather abstract nature. A next step would be to apply this knowledge in practical settings and evaluate its practical applicability and generalisability.

Finally, a theoretical distinction between internal and external interdependence could be made, where internal interdependence refers to the interdependence among team members (e.g. Thompson, 1967) and external interdependence to the interdependence between teams or divisions (e.g. McCann & Ferry, 1979). In line with most research on interdependence relationships, we did not make this distinction, although we realize that such a distinction may be important.

1.5 Outline of this dissertation

Chapter 1, the present chapter, provided an introduction to the issues that are the research subject. In addition, it discussed the existing literature on effective combinations of task and goal interdependence, task and reward interdependence, and goal and reward interdependence.

In chapter 2, the theoretical basis for this research and the research design are further specified. The first part elaborates on the central concepts of this research, the research focus and the development of a prescriptive framework on optimal combinations of task, goal and reward interdependence and content fit. The second part of this chapter elaborates on a case-study approach and discusses such issues as selection criteria, case study design, data collection methods and quality considerations.

Chapter 3 presents a set of procedures for the measurement and classification of task, goal and reward interdependence, the fit between these three constructs and the level of content fit. The remainder of this chapter discusses two case studies in which the applicability of

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these procedures was evaluated. The setting of the first case study is the service department of a large Dutch supplier of office equipment named ‘Copytech’. The setting of the second case study is a Dutch tour operator named ‘Voyage’, which is more complex than the first case in terms of the type of work, variety of performance goals and type of pay for performance plan. This chapter ends with an evaluation of the applicability of the proposed procedures and proposes guidelines for the application of these procedures in future cases. Chapter 4 reports on a first attempt to apply the prescriptive model in practice and to acquire a first notion of the validity of the model. The setting of this case study consists of the top management teams of a global IT-services company named ‘Itech’. The case study consists of two parts. In the first part, the prescriptive model is evaluated via an in-depth study of three top management teams. In the second part the prescriptive model is evaluated in a larger subset, using another data collection method (questionnaires).

Chapter 5 reports on a second case study that was conducted to evaluate the validity of the prescriptive model. The setting of this case study consists of four Business Units (BU) of a Dutch oil and gas company named ‘O&G’. This study specifically focuses on the evaluation of the prescriptive model in situations of low versus high task interdependence. This study also consists of two parts. In the first part, the prescriptive model is evaluated via an in-depth study of two teams with contrasting levels of task interdependence. In the second part, the prescriptive model is evaluated in a larger subset of participating BU’s within O&G via a questionnaire study.

Chapter 6 summarizes and discusses the main findings of this research. In addition, some recommendations for further research are made and the practical implications of this research are discussed.

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2 Research

Design

2.1 Overview

This chapter will start with further defining the three interdependence constructs as discussed in the previous chapter. In the remaining part of this chapter the research design will be clarified by subsequently discussing the following elements of a design: research objective and question, theoretical framework and propositions, case study design and quality considerations with regard to case studies. In the section on case study design, we will further elaborate on several important design elements such as the unit of analysis, replication logic, selection of cases, data collection, and methods of data analysis. This chapter will be largely based on the reference work of Yin (1994) on case study research. 2.2 Task, goal and reward interdependence further defined

2.2.1 Task interdependence

Further defining task interdependence is closely related the discussion on the construct’s antecedents, i.e. what causes task interdependence?

Thompson’s (1967) work has been influential in this. He argues that the level of task interdependence is determined by the technology that is used to complete the task. For example, the way in which a cabin crew of a Boeing 747 has to work together is fully determined by the airplane’s technology, and, in Thompson’s terminology, would result in reciprocal task interdependence. A key characteristic of this type of task interdependence is that complex coordination is required between team members (in this case the cabin crew). More recently, authors have emphasized that the level of task interdependence is not only determined by the technology, but also by other factors, such as 1. the way in which people are instructed to work together (e.g. Shea & Guzzo, 1987, Wageman, 1999, 2001); 2. the definition of the task (Wageman, 1999, 2001); and 3. the way in which scarce resources (e.g. information, skills) are distributed among employees (Wageman, 1999, 2001). From this point of view, the Boeing 747 technology does not automatically result in reciprocal task interdependence, but task interdependence can vary, depending on the way the work is organized (definition, procedures and distribution of resources).

Therefore, following Wageman (1995, 2001), we consider task interdependence to be partly determined by the technology needed to do the work and partly determined by the way in which the work is organized. Although the technology acts as a boundary condition, management can manipulate the level of task interdependence by redesigning the task and the accompanying procedures.

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2.2.2 Goal and reward interdependence

Goal and reward interdependence are two distinct constructs. In the previous chapter we saw that both constructs are not always linked in practice and that they can be manipulated separately. Therefore, we argued that both constructs should not be combined into a single outcome interdependence construct. However, the manipulation of both constructs is identical, i.e. goal and reward interdependence are determined by the level at which performance goal indicators and pay for performance indicators are defined and by the way in which different goal and pay for performance indicators are related to each other. To avoid redundancy, we will not discuss the antecedents of these two distinct constructs separately.

Performance goal indicators and pay for performance indicators (hereafter referred to as ‘indicators’) can be defined at a team and individual level,4 which results in three different design possibilities, as depicted in Figure 2.1. Let us have a closer look at these three possibilities.

Figure 2.1. Causes of different types of goal and reward interdependence

4_{We realize that performance goal indicators and pay for performance indicators can be defined at many other} organizational levels as well. However, in this research we are primarily interested in goal and pay indicators at the team and individual level, because these indicators are the ones that directly impact the type of goal and reward interdependence among team members.

Possible type(s) of interdependence

GOAL OR PAY INDICATORS

Defined at

• positive • positive • negative • neutral

• positiveand positive1 • positive and negative2 • positive and neutral3

Note.

1. Both individual and team indicators create positive interdependence

2. Combination of positive (team level) and negative interdependence (individual level)

3. Combination of positive interdependence (team level) and neutral interdependence (individual level)

Team and individual Team level Individual level

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The simplest case is where indicators are defined at team level, because this always results in positive interdependence. Indicators defined at team level cannot create other types of interdependence.

Indicators at the individual level are more complex, since they can result in different types of interdependence. This is where the relation between indicators comes into play. Take, for example, a team of financial consultants, where each team member is assigned one or more individual indicators. If the indicators of the different team members do not influence one another, they do not create interdependence. An example would be the situation of a team of organizational trainers, where all team members are assigned the goal of giving a specified amount (hours) of reference courses per year. In this case, attainment of the pre-specified amount of hours by one team member does not influence the attainment of this same target by other team members.

One can also think of individual indicators that are positively related. An example would be a management team where the HR manager is assigned the goal of recruiting more and better equipped sales personnel. The sales manager, on the other hand, is assigned the goal to increase market share and customer satisfaction. In this situation, the indicators of the HR and sales manager are positively related: if the HR manager attains his goals, it will positively impact the attainment of the sales manager’s goals, because better sales personnel facilitates an increase in market share and customer satisfaction. Further, these indicators might influence one another the other way around as well: increases in market share and customer satisfaction make the company more attractive to work for, making it easier for the HR manager to attain his goals.

Finally, different individual indicators may create negative interdependence as well. An example would be a management team where the financial manager is assigned the goal to cut down the overhead costs, while the marketing manager is assigned the goal to increase brand recognition by expanding the marketing activities. Latter goal conflicts with the first one: expanding marketing activities brings along overhead costs, thereby negatively influencing the financial manager’s goal attainment. Thus, depending on the way in which different individual indicators are related, they create different types of interdependence. The third possibility, as depicted in Figure 2.1, is that there are both indicators at the individual and team level, which can result in three different types of interdependence. The first type is where the individual level indicators create positive interdependence, like the team level indicators. An example of this situation would be the management team mentioned earlier in this section, where the HR and sales manager have positively interdependent individual goals. In addition to these individual goals, team goals are formulated (e.g., increase turnover and profit), which create positive interdependence as well.

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would be a team of financial consultants where the team goal is to increase billable hours, and where individual team members are assigned the reference course goals as mentioned in the previous example. In this situation the team goal creates positive interdependence, while the individual goals create ‘neutral’ interdependence, together resulting in what we will call ‘slightly positive interdependence’. (See chapter 3, section 3.2.2 for a further elaboration on the classification of goal and reward interdependence.)

The third type of interdependence is where a team goal is combined with negatively interdependent individual level indicators, thereby creating both positive and negative interdependence at the same time. An example of this situation can again be derived from previous examples, such as the management team where the financial and marketing manager have negative interdependent individual level indicators, but where a team goal (e.g., increase turnover and profit) creates positive interdependence. This situation, where the individual level indicators and team level indicators create conflicting types of interdependence will be referred to as ‘slightly negative interdependence’. (See chapter 3, section 3.2.2 for a further elaboration on the classification of goal and reward interdependence.)

2.3 Research objective and question

In the previous chapter we defined a preliminary design model (see chapter 1, Figure 1.1), and reviewed existing literature on fit between the different interdependence constructs. This review revealed that research on, presumably, ineffective combinations of the three interdependence constructs is lacking. Further, it revealed that the findings on optimal types of goal or reward interdependence are consistent for situations of high task interdependence, but inconsistent for situations of low interdependence.

The objective of this research is to enlarge both our theoretical and practical knowledge of effective and ineffective combinations of task, goal and reward interdependence, and goal and pay indicators, and to develop a set of design guidelines for the design of pay for performance plans for teams.

In line with the definition of De Leeuw (1996), this research objective defines the ‘knowledge product’ and relevance of this research, and represents the ‘outside’ of the research. Next to an objective, one or more research questions should be formulated that link the research objective to the theoretical framework and conceptual model, thereby representing the ‘inside’ of the research (De Leeuw, 1996), and facilitating the formulation of propositions. Ultimately, the research questions will enable us to answer the design challenges that were formulated in chapter 1 on the basis of the introductory example.

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Based on the review of research in chapter 1 and the research objective, one general research question can be formulated:

What are effective and ineffective combinations of task, goal and reward interdependence and goal and pay indicators?

2.4 Propositions

Although the research question indicates what we are interested in, it does not exactly point out what we should study. Therefore a set of propositions was developed to further specify the research focus, in accordance with Yin (1994) who argues that all types of case studies (even exploratory studies) require some sort of theoretical framework and propositions. This implies that the case study research method can be applied to evaluate propositions, which is also explicitly recognized by Yin.5 We will come back to this later on in this chapter.

In the sections that follow, propositions on optimal combinations of the task, goal and reward interdependence will be developed. Then, propositions will be developed on the effects of, presumably, ineffective combinations of interdependence constructs, and fit and misfit between the content of goal and pay indicators.

2.4.1 Propositions on theoretically effective combinations of task, goal and reward interdependence (fit)

Empirical findings on optimal combinations of goal and reward interdependence suggest that in high task interdependence situations, goals and pay for performance should create the same types of interdependence. In situations of low task interdependence, on the other hand, empirical findings suggest that slightly positive and any type of reward interdependence is optimal (see chapter 1, section 1.3.3, ‘Combination V’). These empirical findings raise the question how goal and reward interdependence should, theoretically, be combined.

We take the position that the pay for performance plan should create the same type of interdependence among team members as the interdependence created by the goals. We will clarify this position.

The starting point is the earlier made assumption that a pay for performance plan should reinforce the performance goals i.e. the pay plan should ‘follow’ the performance goals. In this context, it was argued that goal and pay indicators should fit in terms of the interdependence they create.6 From this reasoning it follows that performance goals and a

5_{Please note that this view conflicts with other views on case study research, such as the ‘grounded theory’} approach of Strauss and Corbin (1998), which states that case studies should only start with a research question,

Managing Team Performance:

Managing Team Performance:

Interdependence, Goals and Rewards

Managing Team Performance:

Interdependence, Goals and Rewards

Acknowledgements

Table of contents

1 Outline of the Study

2 Research

Design