1 Teams, Performance-Related Pay, Profit Sharing and Productive Efficiency: Evidence from a Food-Processing Plant

By assembling and analyzing new panel data, we investigate the impact of important changes in HR practices on firm performance for a food-processing plant. Our principal economic data are most unusual – weekly records on efficiency for all four production lines in the plant during 1999-2005. Compared to other insider econometric studies our case experienced an unusual degree of change in HR policies with the introduction of teams, company wide-profit sharing and a group system of performance related pay (PRP) though production technology did not change. We use theory and detailed knowledge of HR policies at the case to develop core hypotheses concerning the specific effects of these particular HR plans. We also consider hypotheses concerning why effects might vary across lines. Evidence that is largely derived from interviews mainly supports our key hypotheses. Our key empirical strategy is to estimate structural change models. In three of four production lines we find, as predicted, that the addition of PRP to teams produces substantial productivity increases ranging from 9 – 20%, while in the remaining line there is no change in productivity. We also provide additional and more qualitative evidence that bears on subsidiary hypotheses, e.g. concerning the impact of PRP and teams on product quality and worker incomes