Luento II Hannu Piekkolan osuus KANS2015 Henkilöstön taloustiede I ja II Suorituksen johtaminen ja palkitseminen (5 op) Vaasan yliopisto Antti

Luento II Hannu Piekkolan osuus KANS2015 Henkilöstön taloustiede I ja II Suorituksen johtaminen ja palkitseminen (5 op) Vaasan yliopisto Antti Kauhanen, Hannu Piekkola ja Juhani Kauhanen hannu.piekkola@uwasa.fi

Chapter 13 Personnel Economics in Imperfect Labour Markets: Pietro Garibaldi Piekkolan osuus Chapters 8-13 Teams and Group Incentives Tiimit ja tiimipalkkaus 30.3.2010 2

Tiimit ja tiimikannustimet tehokkaat ratkaisut Additiivisesti separoituva tuotantofuktio Ponnistelun hyötymenetys Maksimointiyhtälö FOC ensimmäisen asteen ehdot kokonaistuotannosta saatavan hyödyn maksimoinnille Q= e + e +... + e 1 1 2 Ce = e i 2 ( ) i /2 Max = e C( e ) = e1 +... + en i i i i e + + e e e 2 2... N i / 2... n / 2 1 e = 0 i e i työntekijän i ponnistelu, C(e) hyötymenetys i N 30.3.2010 3

Tiimit ja tiimikannustimet Työntekijän i päätöksenteko Hyöty U = W e 2 i i i /2 Maksimointiyhtälö FOC ensimmäisen asteen ehdot henkilön i saaman hyödyn maksimoinnille Max e 1 e N i e + e +... + e e N 2 1 2 N = i 2 n e i työntekijän i ponnistelu, C(e) hyötymenetys 30.3.2010 4

Elinkeinoelämän keskusliitto www.ek.fi/tupo/tupo_tavoitteet/tulospalkkaus Tulospalkkaus tiimipalkkausta 2004 Suomalainen erikoisuus on tulospalkkauksen kekseliäs käyttö erilaisten ryhmien ja yksiköiden palkitsemiseen ei pelkästään yksittäisten työntekijöiden. Yhteisillä tavoitteilla ja niitä tukevilla palkitsemisjärjestelmillä voidaan työpaikoilla edistää yhteen hiileen puhaltamista sekä kannustaa tarvittavan toiminnan ja osaamisen kehittämiseen. Tyypillisessä tulospalkkiojärjestelmässä on useampia mittareita, esimerkiksi liiketoiminnan tulos, asiakaspalvelun laatu, tuottavuus ja onnistuminen tärkeän kehitystavoitteen saavuttamisessa. Päätetään yrityksissä Vaikka tulospalkkauksesta päättäminen on viime kädessä johdon asia, yhä tavallisempaa on, että järjestelmiä suunnitellaan ja toteutetaan yhteistyössä. - Metallissa 50 %:n sääntö 30.3.2010 5

Elinkeinoelämän keskusliitto Tulospalkkiot työpaikkakohtaisia peruspalkkajärjestelmää täydentäviä palkkioeriä. monikäyttöinen, koska järjestelmät räätälöidään yritys- ja toimipaikkakohtaisesti. Tulospalkkaus soveltuu hyvin myös johtamisen välineeksi. Molempiin suuntiin joustava tulospalkkaus lisää yrityksen sopeutumiskykyä kysyntä- ja suhdannevaihteluihin. Kokemukset tulospalkkauksesta ovat olleet tähän asti hyviä. Tulospalkkausta käyttävät yritykset tuottavampia ja henkilöstön vaihtuvuus vähäisempää. 30.3.2010 6

Elinkeinoelämän keskusliitto tulospalkkaustiedustelu 2005 30.3.2010 7

Elinkeinoelämän keskusliitto tulospalkkaustiedustelu 2005 30.3.2010 8

Elinkeinoelämän keskusliitto tulospalkkaustiedustelu 2005 30.3.2010 9

EK: palkkiokäsitteet Voitto yksinomainen peruste - ei suunnitelmaa... Voitonjakoerä Voitto yksinomainen peruste - suunnitelma ennen tilikauden alkua... Voittopalkkio Voiton lisäksi muita perusteita, mutta voiton merkitys väh. 50 %... Voittopalkkio Voiton lisäksi muita perusteita, mutta voiton merkitys alle 50 %... Tulospalkkio Voitto tekijänä, joka laukaisee palkkion maksun........... Tulospalkkio Taloudelliset tunnusluvut, reaaliprosessiin liittyvät tavoitteet ja kehitystavoitteet perusteina yhdessä tai eri yhdistelminä (ei voitto)... Tulospalkkio Yksinomaan reaaliprosessiin sidotut määräytymisperusteet, yleensä tes-sidonnainen... Palkkiopalkka 30.3.2010 10

EK: tulospalkkauksen yleisyys 1990 10% työntekijöistä tulospalkkauksen piirissä, 2001 50 %, 2005 yli 50 % Kaksi kolmesta saa yleensä tulospalkkaa Keskimäärin 1700 2003, 4.8% ansioista, 1,9% kaikista ansioista Lähteet: PT (2002) Tulospalkkausyksityisillä palvelualoilla vuonna 2001, TT (2002) Tulospalkkaus 2002 sekä PT:n ja TT:n palkkatilastot vuodelta 2003 30.3.2010 11

EK: tulospalkkaus eri sektoreilla 30.3.2010 12

What Makes Performance-Related Pay Schemes Work? Finnish Evidence Antti Kauhanen ja Hannu Piekkola Journal of Management Governance (2006) 10, 149-177 Objective How features of performance-related pay (PRP) schemes affect their perceived motivational effects using a Finnish survey for upper white-collar employees from 1999 Motivational if 1. Employees feel they are able to affect the outcomes 2. Organizational level of the performance measurement close to the employee individual and team level performance measurement increase the probability that the scheme is perceived to be motivating 3. Employees familiar with the performance measures 4. Level of payments high enough and rewards frequent enough 5. Employees participate in the design of the PRP scheme 30.3.2010 13 Journal of Management Governance (2006) 10, 149-177

What Makes Performance-Related Pay Schemes Work? Finnish Evidence Literature Lazear (2000): a shift to piece-rates led to a 44 % increase in productivity. Around half of this improvement is explained by sorting effects and the other half by increased effort. Ability to measure performance is generally crucial for the success of PRP schemes Basic pay is preferred over PRP if jobs include a wide range of tasks, team production is important, and supervision intensity is high PRP is quite common for upper white-collar employees, so it must be the case that there are monitoring environments which are suitable for motivating PRP schemes 30.3.2010 14 Journal of Management Governance (2006) 10, 149-177

What Makes Performance-Related Pay Schemes Work? Finnish Evidence PRP plans (also when including piece rates and profit sharing) is similar in Finland when compared to other industrial countries. Canada: one third of workers receive profit sharing and half of the firms have plans based on organizational performance France: one third of workers receive voluntary and mandatory profit shares US: PRP schemes are mostly deferred and resemble seniority payments and 10-28 % of highly educated employees are in bonus schemes Germany: at the lower end with piece rates or premium rates covering 22% of manufacturing blue-collar employees, 14.7% of establishments having profit sharing plans in 1996 Australia: 41% of workplaces used performance related plans in 1995, which include piece rates. 30.3.2010 15 Journal of Management Governance (2006) 10, 149-177

What Makes Performance-Related Pay Schemes Work? Main hypotheses H1: The effect on effort is higher when performance is measured at the individual or team level, and the performance measures are such that the employees can control them. H2: The clearer the relationship between the effort and rewards, the larger the effect on effort. H3: The share of the PRP of wage income has to be substantial enough in order to be effective. H4: The way the goals are set matters for motivational outcome. The more participation in the design of the scheme and the clearer the goals, the more motivating the system. 30.3.2010 16 Journal of Management Governance (2006) 10, 149-177

What Makes Performance-Related Pay Schemes Work? Data Survey from 1999 The Union of Professional Engineers in Finland (IL), The Finnish Association of Graduate Engineers (TEK), and The Finnish Association of Graduates in Economics and Business Administration (SEFE) The number of observations is 19,336 of which 15,068 are from the technical field (7,559 in IL and 7,509 in TEK) and 4,468 from the field of economics and business administration Logit model 30.3.2010 17 Journal of Management Governance (2006) 10, 0:1-29 149-177

Variable Obs Mean Std. Dev. 3 6 times a year 7.96 Min Two times a Max year 8.29 PRP motivates 9107 0.481 0.500 Once a year 0 1 55.5 Share of PRP of total earnings 9045 0.078 0.096 Less frequently 0 1 1.55 Share of PRP of total earnings 1st Q. 2261 0.002 0.004 Ability to 0influence 0.013 the level of PRP Share of PRP of total earnings 2nd Q. 2261 0.035 0.012 payments 0.013 0.05 % Share of PRP of total earnings 3rd Q. 2261 0.082 0.017 Very high 0.05 0.1 4.76 Share of PRP of total earnings 4th Q. 2262 0.195 0.124 High 0.1 1 26.46 PRP measurement levels Rather low 40.96 Personal level 9107 0.368 0.482 Very low 0 1 26.19 Team level 9107 0.270 0.444 Cannot say0 1 1.63 Department level 9107 0.566 0.496 How well 0do you know 1 the measure Corporation level 9107 0.582 0.493 used in the 0 PRP scheme? 1 % Other level 9107 0.020 0.141 Very well 0 1 33.18 # of PRP levels 9107 1.806 0.933 Rather well 0 5 42.34 PRP measures Rather poorly 17.04 Financial 9107 0.849 0.358 Poorly 0 1 6.48 Customer satisfaction 9107 0.301 0.459 Cannot say0 1 Development goal 9107 0.281 0.450 How have 0the principles 1 of the PRP 0.96 Work atmosphere 9107 0.138 0.345 scheme been 0 defined? 1 % Productivity 9107 0.408 0.492 Orally or cannot 0 say 1 18.03 Other measure 9107 0.103 0.305 In writing 0in the employment 1 contract # of PRP measures 9107 2.081 1.097 or otherwise 0 6 81.97 Frequency of PRP payments % Who has the defined the PRP Monthly 25.68 scheme? % 7-11 times a year 1.01 Employer and employees jointly 30.56 3-6 times a year 7.96 Employer unilaterally 45.46 Two times a year 8.29 Agreed on a personal level 13.94 Once a year 55.5 Otherwise 10.04 Less frequently 1.55 Does your income depend on Ability to influence the level of PRP performance? % payments % Yes 47.10 Very high 4.76 No 52.90 High 26.46 Rather low 40.96 Very low 26.19

The Motivational Effect of PRP All All Management Research and Development Level of Measurement Personal level 0.090*** 0.025* 0.069* 0.213*** [6.51] [1.76] [1.85] [3.24] Team level 0.045*** 0.028* -0.063 0.008 [3.08] [1.91] [1.31] [0.12] Department level 0.002 0.011 0.024 0.071 [0.18] [0.77] [0.61] [1.13] Corporation level -0.046*** -0.018 0.025-0.016 [3.46] [1.32] [0.58] [0.25] Other level -0.152*** -0.141*** -0.327* -0.372* [3.45] [3.10] [1.85] [1.74] Performance Measures Financial goal 0.008 0.005-0.115 0.013 [0.40] [0.27] [1.50] [0.17] Customer satisfaction goal -0.009-0.016-0.066 0.013 [0.62] [1.15] [1.56] [0.20] Development goal 0.056*** 0.043*** 0.018 0.023 [3.92] [2.91] [0.46] [0.39] Work atmosphere goal 0.005 0.003 0.068-0.061 [0.29] [0.19] [1.47] [0.66] Productivity goal 0.018 0.005 0.013-0.047 [1.33] [0.34] [0.36] [0.71] Other goal/cannot say -0.034-0.03 0.032-0.160* [1.62] [1.40] [0.50] [1.71] How Well Knows the Measures (reference category very well) Measures known well -0.108*** -0.064*** -0.033-0.08 [7.33] [4.17] [0.78] [0.98] Measures known rather poorly -0.176*** -0.093*** -0.147* -0.119 [9.18] [4.57] [1.77] [1.17] Measures known poorly -0.250*** -0.127*** -0.065 0.07 [8.95] [4.14] [0.31] [0.50] Cannot say -0.213*** -0.143** 0.202-0.084 [3.52] [2.18] [0.74] [0.33] Influence on PRP payments (ref. very high) Influence on PRP high 0.007 0.031-0.103 [0.21] [0.58] [0.30] Influence on PRP low -0.202*** -0.187*** -0.158 [6.33] [3.14] [0.46] Influence on PRP very low -0.406*** -0.405*** -0.392 [12.89] [5.11] [1.20] Influence on PRP cannot say -0.255*** -0.368-0.204

All All Management Research and Development Frequency of Payments (ref. monthly) Frequency 7-11 times a year -0.415*** -0.407*** [7.21] [6.84] Frequency 3-6 times a year -0.049-0.035 0.102-0.225 [1.55] [1.07] [0.95] [1.56] Frequency 1-2 times a year or less -0.112*** -0.108*** 0.036-0.285** [4.30] [4.06] [0.43] [2.14] Share of PRP (ref. 1st quartile) Share of PRP of total earnings 2nd quartile -0.006-0.013 0.038-0.01 [0.33] [0.75] [0.66] [0.13] Share of PRP of total earnings 3rd quartile 0.116*** 0.076*** 0.147*** -0.037 [6.85] [4.31] [3.22] [0.48] Share of PRP of total earnings 4th quartile 0.199*** 0.137*** 0.223*** 0.092 [11.01] [7.23] [5.02] [1.01] Participation in design ( ref. jointly/agreed on personal level or cannot say) Employer alone decides the design -0.075*** -0.041*** -0.014-0.115** [6.06] [3.17] [0.39] [1.99] Written agreement on PRP ( ref. oral agreement or cannot say) -0.008 0.002 0.045 0.152* [0.47] [0.12] [0.91] [1.80] Type of work Overtime % -0.155** -0.223*** -0.179-0.344 [2.55] [3.58] [1.30] [0.98] Fixed-term contract (ref. permanent employment) 0.165*** 0.168*** 0.162 0.185 [3.44] [3.42] [0.59] [1.01] Business school education (ref. technical education) 0.046 0.061** 0.143-0.155 [1.56] [2.02] [1.64] [0.49] Monthly wage 0.058*** 0.037*** 0.01 0.068 [8.22] [5.01] [0.73] [1.28] Industry (ref. manufacturing) IT sector 0.087*** 0.077*** 0-0.006 [5.42] [4.70] [0.00] [0.08] Construction, energy 0.063** 0.052* -0.12 0.285

Type of work Overtime % -0.155** -0.223*** -0.179-0.344 [2.55] [3.58] [1.30] [0.98] Fixed-term contract (ref. permanent employment) 0.165*** 0.168*** 0.162 0.185 [3.44] [3.42] [0.59] [1.01] Business school education (ref. technical education) 0.046 0.061** 0.143-0.155 [1.56] [2.02] [1.64] [0.49] Monthly wage 0.058*** 0.037*** 0.01 0.068 [8.22] [5.01] [0.73] [1.28] Industry (ref. manufacturing) IT sector 0.087*** 0.077*** 0-0.006 [5.42] [4.70] [0.00] [0.08] Construction, energy 0.063** 0.052* -0.12 0.285 [2.22] [1.77] [1.63] [1.24] Technical services 0.060* 0.055* 0.121-0.063 [1.96] [1.77] [1.36] [0.34] Trade 0.077*** 0.067** 0.084 [2.59] [2.19] [1.46] Finance 0.034 0.025 0.024 [1.03] [0.73] [0.32] Services -0.054** -0.064*** -0.024-0.085 [2.29] [2.63] [0.41] [0.60] Other background variables Higher university education, doctoral -0.050*** -0.028** -0.028 0.066 [3.64] [1.98] [0.73] [0.90] Labor market experience -0.005*** -0.004*** -0.004-0.012*** [6.39] [4.97] [1.58] [2.77] Observations 7839 7839 970 463 Pseudo R-squared 0.13 0.18 0.17 0.2 Log likelihood -4737.22-4470.58-517.89-256.75 Note. Table reports marginal effects. Absolute value of z statistics in brackets, * significant at 10%; ** significant at 5%; *** significant at 1%. The dependent variable is constructed from the question "do you feel PRP to be motivating?" where the possible answers are yes/no/can not say. "Yes" is coded as 1 and "no" and "cannot say" as 0. The estimation includes also a constant, regional dummies and firm size dummies that are not reported.

What Makes Performance-Related Pay Schemes Work? Main hypotheses H1: The effect on effort is higher when performance is measured at the individual or team level, and the performance measures are such that the employees can control them. Personal and team level measurement is better than company level except for management H2: The clearer the relationship between the effort and rewards, the larger the effect on effort. Monthly payments are viewed as the most motivating H3: The share of the PRP of wage income has to be substantial enough in order to be effective. The level of payments should be high enough, and they should be paid frequently enough at least 5 % of salary 30.3.2010 22 Journal of Management Governance (2006) 10, 149-177

What Makes Performance-Related Pay Schemes Work? Main hypotheses H4: The way the goals are set matters for motivational outcome. The more participation in the design of the scheme and the clearer the goals, the more motivating the system If the employer decides unilaterally on the scheme it is less likely to be considered motivating 30.3.2010 23 Journal of Management Governance (2006) 10, 149-177

Performance-related pay and firm performance in Finland Hannu Piekkola International Journal of Manpower (2005) 26 (7/8), 619-635 Main findings in analysing once and for all change in PRP Note. PRP usually accompanied by new human resource management and pay structure PRP improves both productivity and profitability by the same magnitude of around 6 percent - If the compensations are substantial enough and exceeding on average 3.6 per cent of salaries for those who receive it. - PRP in Finland cannot, however, be directly linked to an increase in participation of employees in decision-making. PRP schemes have substantially improved firm performance without creating much wage pressures. 30.3.2010 24 International Journal of Manpower (2005) 26 (7/8), 619-635

Performance-related pay and firm performance in Finland Introduction Changes in the business environment in Northern Europe have caused corporate restructuring: organisational delayering and the decentralisation of strategic and operational decision-making (Ruigrok et al.,1999). New way of organising employment not only includes team-working and employee involvement in decision-making but also contingency pay (Whitfield and Poole, 1997). Domestic market is open to more intense foreign competition as a result of EU membership in 1995 and rise on foreign ownership: - Number of foreign-owned firms in Finland rose 70% from 1146 to 1936 between 1995-2000 - 3300 daughter companies, 193000 employees in 2004 influences corporate governance and the incentive schemes used 30.3.2010 25 International Journal of Manpower (2005) 26 (7/8), 619-635

Performance-related pay and firm performance in Finland Reasons for PRP PRP as a way to align the incentives of employees and employers when output is difficult to measure or ascribe to an individual - typical for highly educated and for R&D employees with complex tasks - Reorganisation of work may thus be needed ensuring horizontal monitoring (FitzRoy and Kraft 1987) or peer pressure (Kandel and Lazear 1992) The desire to have some stability in the workforce - Ambiguous evidence Enhance co-operation between employees and employers Avoid firings when wages are flexible 30.3.2010 26 International Journal of Manpower (2005) 26 (7/8), 619-635

Wages and PRP White-collar workers receive substantially higher share of the profit share compared to wages Productivity effects are not lower for blue-collar workers, when it has been seen desirable to extent PRP to cover all workers by its popularity in firms with long tenures and low churning. The difference between the 80 and 20th percentiles of regular hourly earnings is used as a proxy for the possibilities of promotion in a given firm. Firms with a larger wage variation measured in this way exhibit a more hierarchical structure. - no support for the hypothesis of substitution PRP for hierarchical payments, since large wage variance increases the likelihood of PRP the excess mobility - For blue-collar workforce decreases the probability of PRP - For white-collar workforce increases the probability of PRP for white-collar workforces. 30.3.2010 27

The level of PRP and the productivity before and after the implementation of the scheme Production function approach: ln( VA ) = α + β k + β l + β k + β l + β l * k it it it 2 2 it 1 1 it 2 it 3 it 4 it 5 it it + γx + ϕprp + v + e V k l it i it = value added = log of capital = log of employment x = firm preference, composition of workforce PRP =tulospalkka (maksettu periodilla e ij it = satunnaismuuttuja yritysspesifi t+1) PRP dummy one after PRP once implemented 30.3.2010 28

Dependent variable: Log of Value Added in Production Function Estimation 30.3.2010 DATA EK mainly manufacturing 1996-2002 29

Productivity and PRP First column shows no statistically significant productivity effects Second column concentrates on the 75 per cent of the profitsharing firms where total profit shares paid in subsequent year exceeded 0.6 per cent of the total wage bill we get positive productivity effects. - The effects are reasonable, being around 6 per cent. Fourth column: the effects are the same after instrumentation Other results - Firms with high wage dispersion are more likely to adopt PRP and these firms also have higher productivity 30.3.2010 30

Määräaikaiset vs. pysyvät työsuhteet Tito Boeri and Pietro Garibaldi: Two Tier Reforms of Employment Protection: a Honeymoon Effect Economic Journal (2006) 117 A link between growthless job creation and the asymmetric labor market reforms in Employment Protection Legislation (EPL) carried out in several European countries in the 1990s. EPL affects both the incentives to hire and to dismiss workers Short term: when temporary contracts are suddenly introduced, the firm exploits any hiring flexibility in good business conditions, but can not exploit downward flexibility in bad times, since it is constrained by the stock of insider workers. Long term: Eventually, the employment gains are dissipated by the decline of insider workers. A fall in average productivity in the aftermath of the reform, as a consequence of decreasing marginal return As the firm expands in good periods, its employment pool increases along a downward sloping labor demand, with additional workers who are less productive at the margin. 30.3.2010 31

Two-tier reforms The key macrofacts that characterize the aggregate labour markets in the countries that undergo a twotier reforms are 1. An acceleration of employment growth; 2. An increase in the employment content of growth (involving a declining labor productivity growth); 3. A significant contribution of temporary contracts to aggregate employment growth. 30.3.2010 32

Boeri ja Garibaldi (2006):Two Tier Reforms of Employment Protection: a Honeymoon Effect Figure 1 Index of regulation of regular employment 30.3.2010 33

Boeri ja Garibaldi (2006):Two Tier Reforms of Employment Protection: a Honeymoon Effect Figure 2 Index of regulation of fixed-term employment 30.3.2010 34

Määräaikaisten osuuden kehitys työsuhteiden joustavuutta lisänneissä maissa

Two-tier reforms: työllisyyden kehitys ennen ja jälkeen reformin Employment Growth Before and After Two Tier Reforms Period Average growth Period Average growth Belgium 92-96 0.91 97-04 0.98 Spain 81-85.. 85-04 2.51 Italy 92-96 - 0.24 97-04 1.29 Netherlands 92-97 1.11 98-04 1.09 Portugal 92-95 0.3 96-04 1.7 Sweden 95-96 -0.77 97-04 1.19 30.3.2010 36

Aineisto

Yritykset jotka eivät palkanneet tai irtisanoneet osuus laski uudistusten jälkeen

Työllisyyden ja sen standardipoikkeaman kehitys

Arvonlisän ja sen standardipoikkeaman kehitys Tuottavuuden kehitys

Arvonlisän ja sen standardipoikkeaman kehitys

Remark 1 The transition from a rigid to a two tier regime features a honeymoon effect involving 1. Permanent reduction of the inaction region, hence of the share of firms not adjusting employment levels; Aina kun joustavuutta lisätään 2. Temporary positive effect on average employment, and an increase in its standard deviation; Kuherruskuukausi vaikutus 3. Temporary negative effect on average productivity, and a decline in its standard deviation; Uusilla työntekijöillä alhaisempi osaamistaito, työntekijämäärää sopeutetaan tuottavuuden mukaan 4. Permanent increase in profits. Yritystasolla voimavarat allokoidaan tehokkaammin 30.3.2010 42