Incentive Power and Knowledge Sharing Among Employees: Evidence from the Field

There is consensus, both in the literature and in practice, about knowledge sharing within organizations being a key determinant of success. However, organizations struggle to sustain employees’ engagement in knowledge sharing. One challenge lies in the fact that, while compensation contracts specify an explicit relation between performance on employees’ main responsibilities (i.e., standard tasks) and monetary payoffs, knowledge sharing is a voluntary activity that is not explicitly included in employees’ main responsibilities or formally assigned to them by their managers. This study examines how standard task incentive power (i.e. the elasticity of payoffs with respect to standard task performance) influences employee propensity to share knowledge. We show that high-powered incentives are associated with less knowledge sharing, in particular when shared knowledge aims to benefit a broader set of constituents than the proponent. Our findings are consistent with the notion that high-powered incentives, by fixating employees’ attention on their standard tasks, signal a transactional psychological contract, which limits their contribution to exchanging time and tasks for pay. Low-powered incentives, instead, are more likely to signal a relational psychological contract, whereby employees contribute to the success of the firm in ways that go beyond their defined responsibilities. We contribute to the literature on incentives for knowledge sharing and on the unintended consequences of pay-for-performance compensation.