Incentivizing Team Leaders: A Firm‐Level Experiment on Subjective Performance Evaluation of Leadership Skills

ABSTRACT In teamwork settings, providing effective leadership can be challenging for team leaders due to multitasking and the difficulty in measuring and rewarding leadership input. These challenges can lead to underprovision of leadership activities, ultimately impeding the productivity of the team. To address this problem, we conducted a field experiment at a manufacturing firm, introducing a relative subjective performance evaluation of team leaders' leadership activities by their managers, coupled with bonuses based on their leadership rank among all leaders. Our intervention increased other team members' productivity by approximately 7% while leaving team leaders' productivity unchanged and was profitable for the firm. During the intervention, we observed a positive correlation between the evaluations of team leaders and the productivity of team members, suggesting that the subjective evaluation was accurate and indeed increased leadership activities and thus productivity.