“The Effects of Incentives on Workplace Performance: A Meta-Analytic Review of Research Studies” shows that on average, a team incentive program will increase performance by 49% while individual plans increase performance by 19%. On the surface this looks pretty straight forward, however there is a catch. Over time, team performance incentives can actually contribute to a decline in performance and compromise the overall goals of the program. This is due to a well-documented workplace phenomenon known as “social loafing.” Social loafing occurs when individual team members don’t perform at their peak level because they feel that others in their group will pick up the slack. When this happens, other team members will usually exert peer pressure on the “loafers.” Initially this peer pressure will increase performance, but eventually it will cause resentment which will lead to a variety of performance reducing factors such as low morale and turnover.
The solution to this dilemma is pretty simple. You can still capitalize on the short-term results generated by team incentive programs and contests. However, you should implement them only as an occasional supplement to the your more permanent, longer-term individual incentive programs and efforts.
Condly, Clark, and Stoltovich “The Effects of Incentives on Workplace Performance: A Meta-Analytic Review of Research Studies” Performance Improvement Quarterly, 16(3) pp. 46-63