Does Linking Worker Pay to Firm Performance Help the Best Firms Do Even Better?
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.
This research was made possible with the gracious cooperation of Amy Lyman and the Great Place to Work® Institute. It was supported by an Officer Grant from the Alfred P. Sloan Foundation to the School of Management and Labor Relations at Rutgers, and by the Foundation for Enterprise Development which funded the Beyster Faculty Fellowships for Kruse and Blasi at Rutgers. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Firms that make greater use of group incentive pay decrease voluntary turnover by almost 11 percentage points. In Does Linking...