Managing performance by incentives

Today I found an article in the news about the behaviour based on social connections and incentives in the workplace. This study is academic but based on a field study on workers at a farm. So the data is more easy to analyse and also the result of the behaviour change. (Find in German: www.handelsblatt: Zu gute STimmung ist schlecht fürs Geschäft). As usual it is difficult to say, if you can compare this findings to other kind of business and if there is a chance even to compare it to gender issues - but think about it. If your bonus is attached to higher performance of the team, you focus on the performance people rather than on your soulmates. But ... if you look at the whole in a systemic way, what happens to your high performers, if they work harder and harder and get all management attention, but you loose 60 % of the workforce as they do less and less? Your high performers might get to a point of burnout. From a substainable point of management, try to leverage the whole potential of the group and balance performance outcome on the long run.

Here the link to the whole study - make your own mind and let us disucss.
Claudia Schmitz

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1329555
http://econpapers.repec.org/paper/cprceprdp/7114.htm

Abstract:    
We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength of managerial incentives and worker's ability. To do so, we combine panel data on individual worker's productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages, to bonuses based on the average productivity of the workers managed. We find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker's ability, but when they are paid performance bonuses, they target their effort towards high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, we find that favoring connected workers is detrimental for the firm's overall performance.

Oriana Bandiera: London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR)
Iwan Barankay: University of Pennsylvania - The Wharton School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Imran Rasul: University College London - Department of Economics; Centre for Economic Policy Research (CEPR)