Opportunity Counts: Teams and the Effectiveness of Production Incentives

36 Pages Posted: 3 Jun 2001 Last revised: 22 Oct 2010

See all articles by Brent Boning

Brent Boning

Government of the United States of America - Council of Economic Advisors

Casey Ichniowski

Columbia Business School - Management; National Bureau of Economic Research (NBER)

Kathryn L. Shaw

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: May 2001

Abstract

This paper investigates the individual and joint effects of group incentive pay and problem-solving teams on productivity. To estimate models of adoption of these work practices and models of the effects of the work practices on productivity, we constructed a data set on the operations of 34 production lines in U.S. steel minimills. Through site visits and interviews, we collected longitudinal data including precise measures on productivity, work practices, and technology of each of these production lines. We find strong support for the proposition that problem-solving teams are an important means for increasing the effectiveness of group incentive pay plans in establishments with complex production processes. With regard to adoption of work practices, we find that problem-solving teams are adopted only in the presence of incentive pay plans, and that more technologically complex production lines are much more likely to adopt teams. The latter result implies that teams are more valuable in these types of production environments. We also present estimates of the productivity effects of adopting these work practices. Group-based incentive pay, on average, raises productivity, and the adoption of teams in addition to incentive pay leads to a further increase in productivity. The average effect of teams together with group incentives is economically important, corresponding to an annual increase of over 3000 additional tons of steel with a value of over $1.4 million. We also find that the productivity effect of teams is significantly larger in more complex production lines, consistent with the result that more complex production lines are more likely to adopt problem-solving teams. Finally, we show that our estimates of the productivity effects of these work practices are little changed by corrections for possible selectivity bias.

Suggested Citation

Boning, Brent and Ichniowski, Bernard E. (Casey) and Shaw, Kathryn L., Opportunity Counts: Teams and the Effectiveness of Production Incentives (May 2001). NBER Working Paper No. w8306. Available at SSRN: https://ssrn.com/abstract=272123

Brent Boning

Government of the United States of America - Council of Economic Advisors

Eisenhower Executive Office Building
17th and Pennsylvania Avenue, NW
Washington, DC 20502
United States

Bernard E. (Casey) Ichniowski (Contact Author)

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kathryn L. Shaw

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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