Compensating Nondedicated Cross-Functional Teams

In today's ever-changing, competitive business environment, nondedicated cross-functional teams have become an important organizational work unit. This paper studies how the firm should optimally compensate such teams. Most previous studies on team compensation deal with dedicated work groups, where team members essentially allocate all their time and effort to team work. Little research has addressed issues related to compensating nondedicated teams, where team members perform tasks assigned by their home departments while also completing team work. In this paper, we provide analytical models to describe the unique decision-making processes engaged both by the firm and by such nondedicated team members. Our game-theoretic approach incorporates interdependency among team members into cross-functional team yield functions and takes into account the social benefits generated from team interactions for both firms and individual employees. The models also consider the technical and social skill differences among team members. Our results not only generate managerial insights on how firms should compensate nondedicated team members, but also build the foundation for future empirical studies.