In a recent study, the behavioral economists Marvin Deversi, Martin G. Kocher, and Christiane Schwieren analyze the cooperative culture in a large software firm. They conduct behavioral experiments with employees of the firm to elicit a unique measure of their cooperativeness. Linking data from the experiments with HR data from the firm’s records allows the researchers to study how the firm’s management practices relate to the cooperativeness of employees. Their study is a lighthouse project for how People Analytics can be used to inform the design of HRM practices in firms.
Cooperation in firms – Solving a social dilemma
Modern firms have recognized the critical value of a cooperative culture for business success. Within firms, most processes and production steps heavily rely on cooperation among employees. This is especially true for teamwork but also in other everyday interactions such as helping or knowledge sharing. However, in those contexts, employees need to solve a “social dilemma” to achieve cooperation. A team of employees would be better off overall if everyone in the team puts in a lot of effort into a joint project. At the same time, each employee has an individual incentive to only contribute the minimum effort into the project and to “free-ride” on the efforts of his/her colleagues. If every employee behaves according to this individual incentive, the joint product is provided on a suboptimal scale, or not at all. Cooperation fails. This social dilemma is often reinforced by traditional reward systems that incentivize relative individual performance and, hence, induce competition rather than cooperation. Striking the balance between cooperation and competition is one of the most challenging management tasks in firms.
Evidence from research
In their study "Cooperation in a Company: A Large-Scale Experiment" Marvin Deversi, Martin G. Kocher and Christiane Schwieren conducted behavioral online experiments with 910 employees from a large software firm. In the experiments, employees were matched with anonymous colleagues. Divided in small teams, the participants play a classic public goods game. Importantly, employees could earn real money with their decisions. Using these behavioral experiments, the researchers were able to measure the cooperative attitudes and behavior of employees and what they believed about the cooperativeness of their colleagues. In a next step, the researchers linked the experimental data with HR data from the firm’s records. This included salary increases and financial rewards as well as data from an internal recognition tool in which employees can send non-financial “thank you” awards to one another. The combined data set enables the researchers to provide evidence on (i) the association between cooperative attitudes and financial rewards within the company, and (ii) potential non-financial reasons for cooperation.
Overall, the study shows three systematic patterns in the data: (i) high levels of cooperation, (ii) a negative correlation between financial rewards and cooperativeness, and (iii) a positive correlation between non-financial rewards and cooperativeness. In more detail:
The study finds that a large fraction of employees exhibits comparatively high levels of cooperation despite the existence of selfish employees. Employees also had high expectations about the cooperativeness of their colleagues. In sum, the firm has been able to create a pronounced cooperative culture among its employees.
The study finds that cooperativeness of employees does not lead to higher individual financial rewards. In contrast, the findings show that within the two-year study period, cooperative employees received 29% lower annual salary increases and 15% lower financial award payments than their more selfish colleagues. Hence, being cooperative is not rewarded financially.
Rather, cooperative employees are non-financially rewarded by their colleagues. They receive more than double the amount of recognition awards as compared to the selfish employees. The researchers also find that individual cooperative employees as well as teams with a larger share of cooperative employees report stronger team cohesion, higher work satisfaction and higher engagement scores. This positive nexus is a sign for the importance of non-financial rewards to foster and sustain a cooperative corporate culture.
The main implication of the study is that firms need to create a work context that allows non-financial rewards as values for cooperation to unfold. This entails that management practices should allow to operationalize the non-financial returns of cooperation. Financial rewards do not appear to target cooperative employees. At workplace settings, it is mostly impossible to infer each employee’s exact contribution to the team production of a joint product. This implies that the cooperative attitude of employees cannot be contracted on, i.e., it is hard to provide financial rewards for contributions to teamwork directly. The firm in the study solved this problem by using a recognition tool in which employees can recognize each other’s behavior. The underlying idea is that through peer-level cooperation and related interactions employees can learn about their colleagues’ cooperativeness and reward it accordingly. Such a recognition award system has a high potential to foster cooperation through a peer-reputation and norm compliance mechanism.
By Emanuel Renkl , PPA
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Reference: Deversi, Marvin, Martin G. Kocher, and Christiane Schwieren. "Cooperation in a Company: A Large-Scale Experiment." (2020).