Status competition and performance in work groups

We study the dynamics of a work group whose members value not only compensation, but also having a high status relative to their peers. Compensation takes the form of a fixed salary plus a bonus based on group performance. Status is determined both by contributing to group output and by non-productive, social activities which we call politics. Group members allocate their time between working and non-productive status enhancement, trying to maximize the combined utility from compensation and status rank. We show that status competition based on merit can push group members to work hard. However, if status can also be achieved through political maneuvering, it can lead to lower overall performance. Moreover, group performance may fluctuate and be unstable over time if the results of effort are noisy or if shared ranks are not allowed in the group. These results help to clarify the question of whether status competition enhances group performance by pushing group members to work harder, or retards it by causing unproductive behavior. They also suggest ways through which a firm can influence the effects of status competition on overall performance. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: J33; J44; M12; M14.