Causes and consequences of large-group incentive systems
The use of profit sharing, gain sharing, and other large-group incentive systems (LGIs) has been increasing in recent years, and there is evidence that these plans can be successful. There is, however, little empirical research that examines in detail the mechanisms through which these plans work. The goal of this dissertation is to examine the causes, consequences and mechanisms of LGIs in order to contribute to the literature on how and why these plans work. The dissertation is composed of a short introduction followed by three survey-based empirical studies. The first study uses an agency framework to explore the impact of the firm's ownership structure on the adoption of LGIs. The results support the hypothesis that greater and more stable ownership by institutional investors is positively related to the adoption of LGIs. The results also provide strongly significant (and unexpected) evidence that firms with high ownership concentration are less likely to adopt LGIs, a result that is potentially driven by risk aversion or entrenchment on the part of the owners. The second study uses a transaction cost economics framework to explain the relationship between the existence of LGIs and basic characteristics of the firm's employment relationship. As hypothesized, leaner, less bureaucratic firms are significantly more likely to adopt LGIs, perhaps because LGIs are consistent with their output-oriented control systems. More bureaucratic firms are significantly more likely to use productivity enhancing initiatives such as supervisory training in worker participation. The results here also show that firms with supportive cultures are more likely to adopt LGIs, and the results suggest that these plans, on average, are a substitute for other forms of compensation. The third study uses institutional economic and behavioral frameworks to model and test the relationships between basic plan features and plan performance. Results show that greater employee participation in decision making, a larger number of group-performance measures, and the existence of job security provisions lead to significantly better plan performance. The size of the group has a nonmonotonic effect, and, surprisingly, the size of the bonus does not appear to affect plan performance.
Year of publication: |
1994-01-01
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Authors: | Mangel, Robert |
Publisher: |
ScholarlyCommons |
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