Incentive pay systems and the management of human resources in France and Great Britain

Incentive pay systems have undergone major changes in recent decades. This paper investigates use of incentive pay systems in British and French private sector establishments in 2004, focusing on payment-by-results, merit pay, and profit sharing, using British and French workplace surveys: WERS and Réponse. Despite the stereotypes of Britain as a deregulated economy and France as a more coordinated social-market economy, French firms make considerably greater use of incentive pay, and particularly, merit pay. The paper explores the organisational and institutional determinants of this. It finds that personnel economics and management theories explain a significant share of the within country variation in use of incentive pay systems. Work autonomy, new technology, use of direct participation and communication are associated with use of merit pay and profit sharing. Product market influences have little direct impact on incentive choice, but may act through the choice of work systems. The effects of organisational variables are stronger in France than in Britain, suggesting that French managers are more conscious of the need for incentives to fit with work organisation. Industry-specific effects are also stronger in France. Two institutional factors help explain why French firms make more use of incentive pay: government tax incentives for profitsharing; and the network activities of industry employer organisations which have boosted diffusion of merit pay. French employers are more active in industry local employer networks, and this correlates with industry usage patterns of incentive pay. French employers faced greater urgency for pay reform in the 1980s, when merit pay started to spread, because they needed greater flexibility within the envelope set by industry wage agreements. This provided the spur for pooling expertise and collective learning about the operation of incentive pay systems which was lacking in Britain.