Making people happy can be better motivator than higher pay for workers

"We found that self-managing teams exhibit increased performance when they are highly cohesive," says Greg Stewart, Henry B. Tippie Research Professor of Management and Organizations in the UI Tippie College of Business. "Peer pressure is a strong motivating force, and workers' willingness to please people who mean something to them is often a stronger motivating force than financial rewards."

Stewart's group studied how members of self-managed teams allotted pay raises for other members of their team. They studied 587 workers in 45 self-managing teams at three factories in Iowa. In each of the 45 teams, teammates were allowed varying degrees of input into how much their teammates should be compensated for their work, and the researchers studied those compensation decisions.

Using questionnaires, they asked the workers about their level of attraction to the team and their compensation, and asked their supervisors about the productivity of both individuals and teams.

"In high functioning teams the group takes over most of the management function themselves," says Stephen Courtright, assistant professor at Texas A&M University who recently received his doctoral degree from UI and was a member of the research group. "They work with each other, they encourage and support each other, and they coordinate with outside teams. They collectively perform the role of a good manager."

He says it makes sense that the team would make sound compensation decisions because they're the ones who work with their team members, after all, and are in the best position to observe their performance.

Stewart says the study confirms what prior research has found, that pleasing other people is a powerful motivating factor. In other words, Courtright says peer pressure is an important social force beyond junior high school. In this case, workers don't want to disappoint their team members, so appealing to team spirit is more effective even than money as a motivating tool.

"We all have a social need to be accepted, to identify with a group and be a part of it," says Stewart. "So much so that peer pressure from team members is more effective than money in prompting strong performances from workers."

However, this works only when team members get along. When they don't, then self-managed teams perform worse than cohesive teams. When team members don't much care for each other, Courtright says appealing to team spirit as a motivating factor won't work because there is no team spirit to appeal to, so money becomes the primary motivating factor to improve productivity.

"Teams perform better when there is social pressure from peers to perform well than when peers wave a carrot and stick," Courtright says. "However, the carrot and stick method works pretty well when team members just can't get along."