Does profit sharing reduce conflict with the boss? Evidence from Germany

Abstract

This paper argues that, in general, profit sharing aligns the interests of workers and the firm and that this alignment reduces the extent of conflict between workers and management. This paper also argues that this general result will not carry over to the workers least able to respond to the alignment of interests with greater effort and that it will not apply to supervisors. After describing the German use of profit sharing, we use German data to show that for non-supervisory workers in excellent health, profit sharing reduces conflict but that for those who are not in excellent health and for supervisors, profit sharing does not reduce conflict. We also show that independent from profit sharing, conflict with the boss is greater for the aged and for those not in excellent health.

Keywords:

• Profit sharing
• mutual monitoring
• cooperation
• supervisor
• health

Notes

¹For evidence on the extent of increased mutual monitoring (peer pressure) versus increased helping effort see Heywood et al. (2003). For evidence on the ease with which workers can monitor each other and on worker attitudes toward poorly performing co-workers see Freeman et al. (2004).

²While the OECD attempts to standardize the presentation of the data as much as possible, these orderings are still based on separate country specific surveys and do not have exactly the same definitions or sampling universes (see OECD, 1995: 142–144).

³See Hübler & Jirjahn (2003) for more details.

⁴Premium pay rewards an objective measure of productivity other than output. These include reduced waste, speed of task completion or quality.

⁵US micro data reveal just the opposite pattern with very few workers paid by piece rates or related schemes (see Parent, 2002).

⁶For a model of these relationships see Jirjahn (2000).

⁷See SOEP Group (2001) for a more detailed description of the data set.

⁸For more on gender differences in attitudes toward incentive pay see Goldin (1986), Geddes & Heywood (2003) and Heywood & Wei (2004).

⁹Obviously the interactions were excluded.