Status competition and performance in work groups

We study the dynamics of a work group whose members value not only compensa tion, but also having a high status relative to their peers. Compensation t akes the form of a fixed salary plus a bonus based on group performance. St atus is determined both by contributing to group output and by non-producti ve, social activities which we call "politics". Group members allocate thei r time between working and non-productive status enhancement, trying to max imize the combined utility from compensation and status rank. We show that status competition based on merit can push group members to wo rk hard. However, if status can also be achieved through political maneuver ing, 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 clar ify the question of whether status competition enhances group performance b y pushing group members to work harder, or retards it by causing unproducti ve behavior. They also suggest ways through which a firm can influence the effects of status competition on overall performance. (C) 2000 Elsevier Sci ence B.V. All rights reserved. JEL classification: J33; J44; M12; M14.