Performance-Related Pay and Firm Productivity: Evidence from a Reform in the Structure of Collective Bargaining

The authors investigate the causal effect on firm productivity of a\r\nswitch from fixed wages to collective performance-related pay,\r\nexploiting a reform in the structure of collective bargaining\r\ntriggered by a social pact. They find that an increase in the adoption\r\nof collective performance-related pay leads to a 3 to 5% productivity\r\ngain but that such effect declines over time. They show that the\r\neffect on productivity varies substantially by firm size, industry\r\naffiliation, and union density. Both the size of the bonus and the\r\ndesign of the scheme—in terms of number and types of parameters\r\nused—are also important features for a firm’s productivity