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
Date Written: April 17, 2017
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: Suggested Citation