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

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\u27 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, M1