The unintended ethical faultline in team-based reward systems

Employers who have introduced team-based rewards systems to foster creativity, collaboration, productivity and sales may want to look again at a system that new research shows can create an unintended, insidious side-effect.

Compared to employees who are individually rewarded, workers in team-based reward systems are more likely to remain silent when they observe a fellow team member engaging in unethical behavior, according to the findings of the new study.

What the researchers say: “Team-based reward systems, initially sparked by Japanese corporate success, have been widely adopted and they have become a staple of good management practice with proven benefits. But managers should be aware that they may be stoking up trouble for the future in terms of undesirable employee behavior,” said the co-author of the research.

The four behavioral studies within the research showed unethical behavior in team-based reward systems was less likely to be reported than in those where individuals were rewarded, explaining why some organizations may be prone to corrupt conduct and poor behavior.

“With team-based incentives, unethical behaviors become relatively advantageous for all team members, thereby suppressing the likelihood that such transgressions get reported. This can become an issue for managers, who run the risk of underestimating the prevalence of undesirable behavior,” he explained.

An additional risk lies in the nature of team-based reward systems, which are usually intended to foster a positive and collaborative working climate. Ironically, the desire to preserve that team ethos and environment can mask underlying problems and allow them to fester, the researchers noted.

Alongside managers needing to understand the inherent ethical risks in team-based reward systems and to be more vigilant, the researchers said there were two further solutions that employers should consider.

“First, managers might consider implementing a tailored reward system, mixing team-based and individual rewards in a balance that works for their particular industry or sector. The second is about culture – creating an environment where employees can blow the whistle on bad behavior and can act safely on their moral anger generated by witnessing such acts,” they noted.

The lead author told us that managers who wanted to encourage employees to report the unethical behavior of colleagues should prioritize the importance of moral intuition and emotions, developing these so-called soft skills alongside the conventional hard skills of business. Integrating training sessions on emotional intelligence can enable employees to accurately recognize and label moral anger and emphasize the potential organizational benefits of acting on such emotions.

So, what? In terms of human design specs this research is hardly surprising. We are essentially pack animals. We function best in small groups—high performing teams (HPTs) are between three and seven individuals. The best of these teams exhibit intense group loyalty. The survival and flourishing of the group are the prime objectives of any HPT.

It is obvious, then, that these teams will seek to cover up unethical conduct by individual team members. And, if the ethical lapse is not too grave, that maybe the price that management has to pay for the benefits of an HPT’s outperformance.

However, with teams that are not HPTs then the situation, from management’s perspective, is quite different. An ethical lapse is potentially hazardous and will, almost certainly lead to increasing underperformance by the group even in the short term.

Group rewards may be functional for HPTs (only 5% of teams are HPTs) and counterproductive for other groups and teams.