Implications of Social Value Orientation and Budget Levels on Group Performance and Performance Variance

In this paper I examine the effects of social value orientation (SVO) and group incentive contracts on performance and performance variance. SVO includes three main personality types: prosocials (who value cooperation and equality in outcomes); individualists (who focus upon their own rewards); and, competitors (who seek relative advantage over others, even at their own expense). In an experiment I form groups of participants based on their SVO and assign them to one of three incentive contracts: a piece-rate contract that pays all employees an equal share of any group output, and two budget-linear contracts (with a medium and a high budget target) that pay zero compensation below the budget target, an equal share of a bonus if the budget target is met and a piece-rate for output above the budget target. Group performance is highest for groups of prosocials and lowest for groups with competitors and SVO has a greater effect under a medium rather than a high budget over latter periods of the experiment. Further, SVO appears to play a role in influencing performance variance. These results illustrate the potential of considering individual difference measures such as SVO in conjunction with formal control systems such as budgets to enhance motivation and coordination within organizations.