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

Type of Work

Article

Date

7-2010

Journal Title

Industrial and Labor Relations Review

Journal ISSN

0019-7939

Journal Volume

63

Journal Issue

4

First Page

606

Last Page

626

DOI

10.1177/001979391006300403

Abstract

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

JEL classification: J24, J33, L66, M12

Hamilton Areas of Study

Economics

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