Decentralized decision-making and group incentives in British manufacturing establishments 1992-1995 and a British retail firm 1998 : recent econometric and case study evidence
Researched in this thesis is the financial impact of employee involvement and performance- related pay systems in UK manufacturing and retail settings. The test questions are introduced in Chapter 1 along with some micro- and macro-level factors which may make it efficient to involve employees in decision-making and to pay basis performance. Chapter 2 discusses theoretical issues associated with involving employees in decision-making and using group-based incentives. There is support from both the theoretical and empirical literature that employee involvement and performance-related pay are more efficient when used in combination. Chapter 3 evaluates methodological issues associated with the examination of these questions, including methods used to attribute for unobserved heterogeneity and endogeneity in the econometric analysis. In Chapter 4 case study evidence is gathered from the retail sector on the adoption of, and associated performance trends with the use of, an All Employee Stock Option Programme (AESOP) and extensive employee communication programmes. Sources at the company indicate that the use of these practices are thought to result in greater employee effort and efficient information sharing. Performance trends, since the adoption of these programmes, indicate improved performance within the company and relative to competitors which do not offer an AESOP. Econometric analysis is used in Chapter 5 to examine the financial impact of individual, team and group pay systems in UK manufacturing establishments where there is work task 'interdependence'. Evidence is found that in team production settings group payments systems are the most efficient pay system. Chapter 6 examines the impact of two forms of employee involvement, decentralized decision-making and two-way information sharing, on establishment performance. These practices are examined both including and excluding incentives. A statistically significant impact on establishment performance is found when performance-based incentives are included: this result disappears when the incentives are excluded. A second econometric analysis is conducted in Chapter 6, evaluating the independent and interactive effects of decentralized decision-making and group incentives in team production settings. Evidence is found that sub-optimal performance results in establishments which use only decentralized decision-making or only group incentives. Establishments that use the practices in combination have the best performance. Chapter 7 is the summary and conclusion.