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Teams, Incentive Pay, and Productive Efficiency: Evidence from a Food-Processing Plant

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  • Derek C. Jones
  • Panu Kalmi
  • Antti Kauhanen

Abstract

By using weekly records on efficiency for four production lines in a Finnish food-processing plant during the period 1999–2005, the authors investigate the effects on production line 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.

Suggested Citation

  • Derek C. Jones & Panu Kalmi & Antti Kauhanen, 2010. "Teams, Incentive Pay, and Productive Efficiency: Evidence from a Food-Processing Plant," ILR Review, Cornell University, ILR School, vol. 63(4), pages 606-626, July.
  • Handle: RePEc:sae:ilrrev:v:63:y:2010:i:4:p:606-626
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    Cited by:

    1. Simone N. Tuor Sartore & Uschi Backes-Gellner, 2012. "Another Effect of Group Diversity: Educational Composition and Workers’ Pay," Economics of Education Working Paper Series 0078, University of Zurich, Department of Business Administration (IBW).
    2. Kato, Takao & Kauhanen, Antti, 2013. "Performance Pay and Enterprise Productivity: The Details Matter," ETLA Working Papers 21, The Research Institute of the Finnish Economy.
    3. Tony Fang, 2016. "Profit sharing: Consequences for workers," IZA World of Labor, Institute of Labor Economics (IZA), pages 225-225, January.
    4. KATO Takao & KODAMA Naomi, 2015. "Performance-related Pay and Productivity: Evidence from Japan," Discussion papers 15088, Research Institute of Economy, Trade and Industry (RIETI).
    5. Matthias Fahn & Hendrik Hakenes, 2017. "Teamwork as a Self-Disciplining Device," Economics working papers 2017-13, Department of Economics, Johannes Kepler University Linz, Austria.
    6. Long, Richard J. & Fang, Tony, 2013. "Profit Sharing and Workplace Productivity: Does Teamwork Play a Role?," IZA Discussion Papers 7869, Institute of Labor Economics (IZA).
    7. Jones, Derek C. & Kalmi, Panu & Kato, Takao & Mäkinen, Mikko, 2017. "Worker separation under performance pay : Empirical evidence from Finland," Research Discussion Papers 33/2017, Bank of Finland.
    8. Fochmann, Martin & Sachs, Florian & Weimann, Joachim, 2019. "Managing wages: Fairness norms of low- and high-performing team members," arqus Discussion Papers in Quantitative Tax Research 238, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. KATO Takao & MIYAJIMA Hideaki & OWAN Hideo, 2016. "Does Employee Stock Ownership Work? Evidence from publicly-traded firms in Japan," Discussion papers 16073, Research Institute of Economy, Trade and Industry (RIETI).
    10. Douglas L. Kruse & Joseph R. Blasi & Richard B. Freeman, 2012. "Does Linking Worker Pay to Firm Performance Help the Best Firms Do Even Better?," NBER Working Papers 17745, National Bureau of Economic Research, Inc.
    11. Majiwa, E. & Mugodo, C., 2018. "Technical efficiency and technology gap ratios among rice farmers in Kenya," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277209, International Association of Agricultural Economists.
    12. Joseph Blasi & Richard Freeman & Douglas Kruse, 2016. "Do Broad-based Employee Ownership, Profit Sharing and Stock Options Help the Best Firms Do Even Better?," British Journal of Industrial Relations, London School of Economics, vol. 54(1), pages 55-82, March.
    13. Artz, Georgeanne M. & Kim, Younjun, 2011. "Business Ownership by Workers: Are Worker Cooperatives a Viable Option?," Staff General Research Papers Archive 34575, Iowa State University, Department of Economics.
    14. Noor-ul- Ain & Hafiz Muhammad Waqas Akhtar & Jamil Ahmad, 2018. "Intended-Implemented HRM-GAP effect on Organizational Performance: Moderation of HR-Uncertainty and Employee Participation," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(3), pages 85-108, September.
    15. Maurice J. G. Bun & Leo C. E. Huberts, 2018. "The Impact of Higher Fixed Pay and Lower Bonuses on Productivity," Journal of Labor Research, Springer, vol. 39(1), pages 1-21, March.
    16. Long, Richard J. & Fang, Tony, 2012. "Do Employees Profit from Profit Sharing? Evidence from Canadian Panel Data," IZA Discussion Papers 6749, Institute of Labor Economics (IZA).
    17. Matthias Fahn & Hendrik Hakenes, 2014. "Teamwork as a Self-Disciplining Device," CESifo Working Paper Series 5131, CESifo Group Munich.

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