Worker incentives

Companies want to get the most out of their workers. This goal has created a long-time issue of how to structure worker pay and other incentives in order to promote the best productivity. N.C. State University economist Mike Walden takes a look at new research on the question.

“Well …, really to decide on how you’re going to pay a worker is somewhat complicated. Of course, many companies simply say, ‘Well, I’m going to pay you based on how many hours you put in or maybe I’m going to give you a straight salary.’ That’s obviously one way to do it. Another way to do it is maybe to have that kind of pay, but in addition have some kind of incentives as you mentioned. Maybe allow the worker to share in the profits that the company makes. Maybe allow the worker — if it’s a stock-issuing company — to be able to buy some stock perhaps at a lower cost in that company. So the notion here is to make the worker look at the company as not just a place to get a paycheck but actually to give the incentive to the worker for the company to do well, because that means the worker will do well.

“So this new research … from the National Bureau of Economic Research looked at the performance in terms of employees between companies that just give them straight paycheck versus companies that also give them these kinds of profit sharing incentive. And what the study found was, on one score, it looks like the companies that give these profit-sharing incentives do better in the sense that they have less turnover of their workers. Workers wanted to stay more at that company, those kinds of companies that give the profit-sharing incentives.

“And of course that’s very important to a company, because worker turnover is very costly. It’s very costly to go out and find more workers. So, this food for thought in terms of how companies might best structure their payment schemes to workers.”