An analysis of changes to a team-based incentive plan and its effects on productivity, product quality, and absenteeism

Using data from three production units of a large manufacturing plant that employs production teams ill its assembly operations, this paper examines how changes made to an existing team-based incentive plan affects labor productivity, product quality, and worker absenteeism. The firm switched from it piece-rates contract and all attendance bonus and instituted it two tier incentive plan comprising two different but complementary performance-based bonus schemes: one tier based oil individual team performance and the other tier oil plant-wide performance. The incentives were introduced concurrently with management control initiatives intended to facilitate cooperation and monitoring among the teams. I find significant productivity gains and improvements in quality and absenteeism associated with the new incentive plan. These findings underscore two important points that have not been emphasized in existing empirical studies of incentive pay: incentive contracts for teams generate Superior performance using combination of incentives, and the need to introduce organizational changes to facilitate cooperation and peer monitoring in tandem with incentive pay to capture greater incentive effects in learn production. (C) 2008 Elsevier Ltd. All rights reserved.