A novel bias in managers' allocation of bonuses to teams: emphasis on team size instead of team contribution

Abstract

How should managers supervising multiple teams allocate bonuses—based on each team’s size or based on each team’s contribution? According to the commonly accepted equity norm for allocating rewards, managers should distribute bonuses based on the relative contributions of the team. In contrast, we propose that managers are instead distracted by the number of employees in each team and neglect team contribution highlighted in the equity norm. Pilot Studies 1 and 2 confirmed that in both individual- and team-based bonus allocation situations, people preferred and actually allocated rewards according to the equity norm rather than the equality norm or the need norm when only contribution was manipulated. However, Study 1, a laboratory experiment, revealed that individuals assigned to the role of a manager allocated more bonuses to the larger team even though the two teams’ actual work output (in terms of the number of units of work completed) was nearly identical. Study 2 replicated the key findings of Study 1 using a sample of managers supervising teams in organizations. Study 3 developed an information nudge—highlighting the team contribution—that reduced this bias. Together, these studies indicate a novel team-size bias that creeps in when managers allocate rewards to multiple teams and document an information nudge to reduce this bias.