Teams, Incentive Pay, and Productive Efficiency: Evidence from a Food-Processing Plant
Derek C. Jones
Hamilton College - Economics Department
Aalto University - Department of Economics
The Research Institute of the Finnish Economy
July 1, 2010
Industrial and Labor Relations Review, Vol. 63, No. 4, 2010
By using weekly records on efficiency for four production lines in a Finnish food processing plant during the period 1999-2005, the authors investigated the effects on worker performance once changes in Human Resource Management (HRM) practices were instituted. Using time series methods to estimate structural change models, the authors were able to determine the extent to which specific HR policies - the introduction of teams, company-wide profit-sharing, and a group system of performance-related pay (PRP) - affected workers’ efficiency, even though production technology remained the same. As predicted, the authors found that in three of the four production lines, when PRP was added to teams, productivity increased from between 9 and 20 %, highlighting the importance of the complementarity between employee participation and incentive pay.
Keywords: Teams, Incentive Pay, Efficiency
JEL Classification: L23
Date posted: November 15, 2010
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