Equal and unequal profit sharing in highly interdependent work groups: A laboratory experiment

We study behavior in a simplified representation of an organization with high task interdependence. The production process involves three stages such that output of earlier stages is the necessary input for subsequent stages. Work at earlier stages is easier than at later stages and the product is only final if it goes successfully through the highest stage. We compare the effects on the performance of the organization of a payment scheme in which profits are equally shared by all those involved in the production process with one where the participation in profits is strongly increasing in the production stage. The comparison is made for two ways of assigning individuals to the production stage: randomly or by merit. We find that initially there is no difference in the organization’s profit between the two sharing schemes, but over time profits increase more with the equal sharing scheme. Changes in profits over time can be explained by changes in production performance over time. After participants have gained experience in the tasks, the equal profit sharing scheme has positive performance effects both at the lowest and the highest production stages. There are only minor differences in the results depending on whether the payment scheme is exogenously imposed or chosen by the person at the highest stage.

© 2021. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/