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Firm-Wide Incentives and Mutual Monitoring at Continental Airlines

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  • Knez, Marc
  • Simester, Duncan

Abstract

In February 1995 Continental Airlines introduced an incentive scheme that promised monthly bonuses to all 35,000 hourly employees if the company achieved a firm-wide performance goal. Conventional wisdom suggests that free riding will render such schemes ineffective. We present evidence indicating that the incentive scheme raised employee performance despite the apparent threat of free riding. To explain why the scheme may have been effective we argue that the organization of employees into autonomous work groups enabled Continental to induce mutual monitoring among employees within each work group. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • Knez, Marc & Simester, Duncan, 2001. "Firm-Wide Incentives and Mutual Monitoring at Continental Airlines," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 743-772, October.
  • Handle: RePEc:ucp:jlabec:v:19:y:2001:i:4:p:743-72
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    References listed on IDEAS

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    1. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    2. Michael A.Conte & Douglas Kruse, 1991. "ESOPs and Profit - Sharing Plans: Do They Link Employee Pay to Company Performance?," Financial Management, Financial Management Association, vol. 20(4), Winter.
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    5. Ehud Kalai & Ehud Lehrer, 1993. "Subjective Games and Equilibria: I+," Discussion Papers 1077, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
    7. Kalai, Ehud & Lehrer, Ehud, 1993. "Subjective Equilibrium in Repeated Games," Econometrica, Econometric Society, vol. 61(5), pages 1231-1240, September.
    8. Joseph Blasi & Michael Conte & Douglas Kruse, 1996. "Employee Stock Ownership and Corporate Performance among Public Companies," ILR Review, Cornell University, ILR School, vol. 50(1), pages 60-79, October.
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