Are Bonus Pools Driven by their Incentive Effects? Evidence from Fluctuations in Gainsharing Incentives

Industrial and Labor Relations Review, Forthcoming

43 Pages Posted: 5 Dec 2016 Last revised: 26 Apr 2017

See all articles by Alan Benson

Alan Benson

University of Minnesota - Twin Cities - Carlson School of Management; Massachusetts Institute of Technology (MIT)

Sima Sajjadiani

University of Minnesota - Twin Cities, Carlson School of Management, Students

Date Written: April 17, 2017

Abstract

Shared bonus pools, in which a worker’s bonus depends both on a worker’s share of the pool (which serves as the incentive) and on the size of the pool (which is largely outside of the worker’s control), are a common method for distributing bonus pay. Using variation in the size of the bonus pool generated by a manufacturing plant’s gainsharing plan, which varies incentives for quality and worker engagement, we evaluate the conditions under which incentives distributed from bonus pools have incentive effects. Overall, results are cautionary: the evidence suggests gainsharing’s benefits operate outside of the incentive channel, and incentives may backfire if they are too small or too diluted by group performance metrics. Lastly, we illustrate how random variation in the size of bonus pools offers researchers a powerful, readily available, and underused tool for studying how workers respond to the availability and strength of incentives.

Keywords: Bonus pools, incentives, gainsharing, manufacturing

JEL Classification: J33, M52

Suggested Citation

Benson, Alan and Sajjadiani, Sima, Are Bonus Pools Driven by their Incentive Effects? Evidence from Fluctuations in Gainsharing Incentives (April 17, 2017). Industrial and Labor Relations Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2879699 or http://dx.doi.org/10.2139/ssrn.2879699

Alan Benson (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://https://sites.google.com/site/amb263/

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://web.mit.edu/alanmb/www/index.htm

Sima Sajjadiani

University of Minnesota - Twin Cities, Carlson School of Management, Students ( email )

Minneapolis, MN
United States

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