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The cost of a firm’s commitment to CSR may be
offset by its appeal to motivated employees who work harder for lower
wages
Survey and register data indicate that many
employees prefer a socially responsible employer and will accept a lower
wage to achieve this. Laboratory experiments support the hypothesis that
socially responsible groups are more productive than others, partly because
they attract cooperative types, partly because initial cooperation is
reinforced by group dynamics. Overall, the findings indicate corporate
social responsibility may have cost advantages for firms.
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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.
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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.
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Profit sharing, a formal “bonus” program based
on firm profitability, can provide strong employee motivation if properly
designed
Profit sharing can lead to higher productivity
and thus to higher firm profitability and employee wages. It may also
enhance employment stability by enabling firms to adjust wages during
downturns rather than lay off workers. While adoption of profit sharing
increases earnings fluctuations, it also increases earnings growth in the
longer term. As with any group incentive plan, profit sharing may result in
some workers benefiting from the effort of others without themselves
exerting greater effort (“free-rider problem”). However, there is evidence
that in team-based production workplaces, profit sharing may reduce shirking
and thus contribute to productivity growth.
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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.
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Penalty contracts lead to higher productivity
than performance-based bonuses, but at the cost of employer/staff
relations
Firms regularly use incentives to motivate their
employees to be more productive. However, often little attention is paid to
the language used in employment contracts to describe these incentives. It
may be more effective to present incentives as entitlements that can be lost
by failing to reach a performance target, rather than as additional rewards
that can be gained by reaching that target. However, emphasizing the
potential losses incurred as a result of failure may entail hidden costs for
the employer, as it may damage the trust relationship between a firm and its
employees.
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Peer pressure can affect productivity and explain why
workers’ wages and productivity depend on their co-workers’ productivity
Should one expect a worker’s productivity, and thus wage,
to depend on the productivity of his/her co-workers in the same workplace, even if the
workers carry out completely independent tasks and do not engage in team work? This may
well be the case because social interaction among co-workers can lead to productivity
spillover through knowledge spillover or peer pressure. The available empirical evidence
suggests that, due to such peer effects, co-worker productivity positively affects a
worker’s own productivity and wage, particularly in lower-skilled occupations.
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Employers can use laboratory experiments to
structure payment policies and incentive schemes
Can a company attract a different type of
employee by changing its compensation scheme? Is it sufficient to pay more
to increase employees’ motivation? Should a firm provide evaluation feedback
to employees based on their absolute or their relative performance?
Laboratory experiments can help address these questions by identifying the
causal impact of variations in personnel policy on employees’ productivity
and mobility. Although they are collected in an artificial environment, the
qualitative external validity of findings from the lab is now well
recognized.
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Donors rely on overhead costs to evaluate
charities, but that reliance creates disincentives for charities to hire
skilled workers
Charity rating agencies often focus on overhead
cost ratios in evaluating charities, and donors appear to be sensitive to
these measures when deciding where to donate. Yet, there appears to be a
tenuous connection between this widely-used metric and a charity’s
effectiveness. There is evidence that a focus on overhead costs leads
charities to underinvest in important functions, especially skilled workers.
To evaluate policies that regulate overhead costs, it is necessary to
examine whether donors care about overhead costs, whether they are good
measures of charity effectiveness, and what effects a focus on overhead
costs has on charities.
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Understanding how employment tribunals make
decisions can guide reforms of employment dispute settlement
Employment tribunals or labor courts are
responsible for enforcing employment protection legislation and adjudicating
rights-based disputes between employers and employees. Claim numbers are
high and, in Great Britain, have been rising, affecting both administrative
costs and economic competitiveness. Reforms have attempted to reduce the
number of claims and to improve the speed and efficiency of dealing with
them. Balancing employee protection against cost-effectiveness remains
difficult, however. Gathering evidence on tribunals, including on claim
instigation, resolution, decision making, and post-tribunal outcomes can
inform policy efforts.
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