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Does Linking Worker Pay to Firm Performance Help the Best Firms Do Even Better?

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  • Douglas L. Kruse
  • Joseph R. Blasi
  • Richard B. Freeman

Abstract

This paper analyzes the linkages among group incentive methods of compensation, labor practices, worker assessments of workplace culture, turnover, and firm performance in a non-representative sample of companies: firms that applied to the "100 Best Companies to Work For in America" competition from 2005 to 2007. Although employers with good labor practices self- select into the 100 Best Companies firms sample, which should bias the analysis against finding strong associations among modes of compensation, labor policies, and outcomes, we find that in the firms that make more extensive use of group incentive pay employees participate more in decisions, have greater information sharing, trust supervisors more, and report a more positive workplace culture than in other companies. The combination of group incentive pay with policies that empower employees and create a positive workplace culture reduces voluntary turnover and increases employee intent to stay and raises return on equity. Finding these effects in the non-representative "100 Best Companies" sample strengthens the likelihood that the policies have a causal impact on employee well-being and firm performance.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:17745
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    File URL: http://www.nber.org/papers/w17745.pdf
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    References listed on IDEAS

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    1. Hart, Robert A & Hubler, Olaf, 1991. "Are Profit Shares and Wages Substitute or Complementary Forms of Compensation?," Kyklos, Wiley Blackwell, vol. 44(2), pages 221-231.
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    3. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
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    5. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    6. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    7. Derek C. Jones & Takao Kato & Jeffrey Pliskin, 1994. "Profit Sharing and Gainsharing: A Review of Theory, Incidence, and Effects," Economics Working Paper Archive wp_125, Levy Economics Institute.
    8. Hubler, Olaf, 1993. "Productivity, Earnings, and Profit Sharing--An Econometric Analysis of Alternative Models," Empirical Economics, Springer, vol. 18(2), pages 357-380.
    9. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps, November.
    10. Norman Frohlich & John Godard & Joe A. Oppenheimer & Frederick A. Starke, 1998. "Employee versus conventionally-owned and controlled firms: an experimental analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 311-326.
    11. 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.
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    Cited by:

    1. Aubert, Nicolas & Garnotel, Guillaume & Lapied, André & Rousseau, Patrick, 2014. "Employee ownership: A theoretical and empirical investigation of management entrenchment vs. reward management," Economic Modelling, Elsevier, vol. 40(C), pages 423-434.
    2. Bryson, Alex & Clark, Andrew E. & Freeman, Richard B. & Green, Colin P., 2016. "Share capitalism and worker wellbeing," Labour Economics, Elsevier, vol. 42(C), pages 151-158.
    3. Nicolas Aubert & Alexander Kern & Xavier Hollandts, 2017. "Employee stock ownership and the cost of capital," Post-Print halshs-01502001, HAL.
    4. Nicolas Aubert & Xavier Hollandts, 2015. "How Shared Capitalism Affects Employee Withdrawal: An Econometric Case Study Of A French-Listed Company," Post-Print halshs-01256759, HAL.
    5. repec:eee:riibaf:v:41:y:2017:i:c:p:67-78 is not listed on IDEAS

    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • P12 - Economic Systems - - Capitalist Systems - - - Capitalist Enterprises
    • P13 - Economic Systems - - Capitalist Systems - - - Cooperative Enterprises
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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