This is a revision of the original article.
This is a revision of the original article. Productivity differences across firms and countries are surprisingly large
and persistent. Recent research reveals that the country-level distributions
of productivity and quality of management are strikingly similar, suggesting
that management practices may play a key role in the determination of worker
and firm productivity. Understanding the causal impacts of these practices
on productivity and the effectiveness of various management interventions is
thus of primary policy interest.
Greater representation of women may better
represent women’s preferences but may not help economic performance
Women's representation on corporate boards,
political committees, and other decision-making teams is increasing, this is
in part because of legal mandates. Evidence on team dynamics and gender
differences in preferences (for example, risk-taking behavior, taste for
competition, prosocial behavior) shows how gender composition influences
group decision-making and subsequent performance. This works through
channels such as investment decisions, internal management, corporate
governance, and social responsibility.
Rewarding only one dimension of performance may
result in employees ignoring other dimensions
To align employees’ interests with the firm’s
goals, employers often use performance-based pay, but designing such a
compensation plan is challenging because performance is typically
multifaceted. For example, a sales employee should be incentivized to sell
the company’s product, but a focus on current sales without rewarding the
salespeople according to the quality of the product and/or customer service
may result in fewer future sales. To solve this problem, firms often
increase the number of metrics by which they evaluate their employees, but
complex compensation plans may be difficult for employees to understand.
Giving workers control over their working hours
increases their commitment and benefits firm performance
Allowing workers to control their work hours
(working-time autonomy) is a controversial policy for worker empowerment,
with concerns that range from increased shirking to excessive
intensification of work. Empirical evidence, however, supports neither view.
Recent studies find that working-time autonomy improves individual and firm
performance without promoting overload or exhaustion from work. However, if
working-time autonomy is incorporated into a system of family-friendly
workplace practices, firms may benefit from the trade-off between (more)
fringe benefits and (lower) wages but not from increased productivity.
Giving employees more discretion at work can
boost their satisfaction and well-being
A wide range of high involvement management
practices, such as self-managed teams, incentive pay schemes, and
employer-provided training have been shown to boost firms’ productivity and
financial performance. However, less is known about whether these practices,
which give employees more discretion and autonomy, also benefit employees.
Recent empirical research that aims to account for employee self-selection
into firms that apply these practices finds generally positive effects on
employee health and other important aspects of well-being at work. However,
the effects can differ in different institutional settings.
Comparisons to others’ pay and to one’s own past
earnings can affect willingness to work and effort on the job
Recent studies show that even irrelevant
relative pay information—earnings compared to the past or to
others—significantly affects workers’ willingness to work (labor supply) and
effort. This effect stems mainly from those whose pay compares unfavorably;
accordingly, earning less compared to others or less than in the past
significantly reduces one’s willingness to work and effort exerted on the
job. Comparing favorably, however, has mixed effects—with usually no effect
on effort, but positive or no effects on labor supply. Understanding when
relative pay increases labor supply and effort can thus help firms devise
optimal payment structures.
Family firms offer higher job security but lower wages
than other firms
Family firms are ubiquitous in most countries. The
differences in objectives, governance, and management styles between those firms and
their non-family counterparts have several implications for the workforce, which
scholars have only recently started to investigate. Family firms offer greater job
security, employ different management practices, have a comparative advantage to avoid
conflicts when employment relations are more hostile, and provide insurance to workers
through implicit contracts when labor market regulation is limited. But all this also
comes at a cost.
Delegating the choice of wage setting to workers
can lead to better outcomes for all involved parties
Economists typically predict that people are
inherently selfish; however, experimental evidence suggests that this is
often not the case. In particular, delegating a choice (such as a wage) to
the performing party may imbue this party with a sense of responsibility,
leading to improved outcomes for both the delegating entity and the
performing party. This strategy can be risky, as some people will still
choose to act in a selfish manner, causing adverse consequences for
productivity and earnings. An important issue to consider is therefore how
to encourage a sense of responsibility in the performing party.