Journal of Industrial Relations

http://jir.sagepub.com/ Performance Pay and Job Satisfaction

John S. Heywood and Xiangdong Wei JIR 2006 48: 523 DOI: 10.1177/0022185606066143 The online version of this article can be found at: http://jir.sagepub.com/content/48/4/523

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Journal ofIndustrial Relations (48)4

pay schemes may also increase or diminish productivity and satisfaction. Brown and Sessions (2003) suggest that workers prefer employment environments seen as rewarding their productivity and that such environments are associated with increased worker optimism about future employment and pay. Kennedy (1995), on the other hand, models the adverse consequence on morale of individual performance pay schemes that generate substantial earnings dispersion between workers doing the same job. In particular, he shows that it is possible for the morale effect to swamp the additional effort effect with the result that productivity actually declines as a result of the pay scheme. This article adds to the literature by estimating the direct influence of performance pay schemes on job satisfaction. In previous research, Miceli and Mulvey (2000) show that workers satisfied with their payment method are more highly committed to their firm. Brown (2001) shows that workers who believe their payment methods are 'fair' report higher levels of satisfaction with their pay. There also exists a literature on how relevant pay referents and deviations from them influence satisfaction with pay (Brown, 2001; Heneman and Judge, 1999; Klein, 1973). Our work, however, is novel in that it directly examines the link between the payment method and job satisfaction. The estimates confirm greater job satisfaction for workers paid by profit sharing and by individual performance pay even after holding constant the level of pay. We further breakdown the job satisfaction measure to examine three specific facets of job satisfaction finding a robust role for performance pay schemes. Further, we use panel data to confirm that individual fixed effects are not generating the role we find for payment schemes. Finally, we break the individual performance pay into specific types of pay: piece rates, commissions, bonuses, tips and stock options. For all types of pay other than piece rates, we confirm greater job satisfaction relative to time rates, all else equal.

Job Satisfaction and Payment Schemes

Renewed interest in job satisfaction has generated a variety of findings and a large literature. Job satisfaction depends on comparison income (Clark and Oswald, 1996). Job satisfaction is higher for the youngest and oldest workers (Clark, Oswald and Warr, 1996; Groot and van den Brink, 1999), for women in Britain and the US and for union members (Clark, 1996, 1997; Sousa-Posa and Sousa-Posa, 2000).1 Job satisfaction decreases with hours, increases with provision of fringe benefits and varies with occupation, industry and skills and has, in general, been declining over the last three decades in the United States (Blanchflower and Oswald, 2004). The emerging empirical framework has been used to examine job satisfaction within particular occupations (Money and Graham, 1999; Ward and Sloane, 2000) and the job satisfaction of workers in developing countries (Mulinge and Mueller, 1998). It has been used to identify compensating differentials in the labour market and to identify the characteristics of good jobs (Clark, 2001). Blanchflower and Oswald (2004) provide a review of how this recent

Heyzwood & Wei: Performanace Pay and Job Satisfaction economics literature grew from, and is related to, work in social psychology. Much of the work in economics focuses on worker and labour market characteristics available in typical micro-data sources. The usual approach uses a Likert measure of self-reported job satisfaction as the realization of an underlying latent continuous variable thought of as the person's true wellbeing or utility from the job. While this latent variable is observable only to the individual and cannot be conveyed unambiguously to the interviewer, the observed Likert measure has been shown to correlate well with objective characteristics and behaviour (again see Blanchflower and Oswald, 2004). The literature uses observed worker and job characteristics as determinants of the self-reported Likert measure and a fairly standard set of independent variables has emerged. To date, payment methods have not been integrated into any of these estimations despite several reasons suggesting they play a role. Payment schemes are designed to more closely align the interests of workers with those of the firm. Increased effort, along a variety of possible dimensions, is elicited through tying payment to results. For instance, workers paid piece rates or commissions equal to the full value added put forth the optimal effort by equating the marginal cost of effort with the marginal value added (see Lazear, 1995: Ch. 2; Parent, 2002). Paid according to time rates, workers stop short of the optimal effort, failing to produce units that generate for them value added greater than their effort cost. Thus, otherwise equal workers paid according to piece rates earn greater surplus than those paid time rates.2 Indeed, a wide range of studies have confirmed that those on piece rates increase effort and earn more than otherwise equal workers on time rates (Ewing, 1996; Lazear, 2000; Parent, 1999; Oettinger, 2001; Seiler, 1984). Thus, payment by results schemes may allow worker optimization that is not captured by other variables in typical determinants of job satisfaction. Beyond the ability to optimize, workers may inherently value the process of being rewarded on the basis of results (Brown and Sesssions, 2003). Alternatively, payment schemes may be part of a bundle of HRM innovations associated with high performance workplaces. These workplaces may provide working conditions that create greater feelings of belonging, esteem and commitment. Godard (2001) provides evidence on the association of job satisfaction and high performance workplaces. Thus, to the extent that payment schemes proxy such workplaces, we might anticipate a positive association between payment schemes and job satisfaction. Against the hypothesis that performance pay increases workers surplus, exists a portrait of workers striving for subsistence at rates inadequate to cover basic needs. In Mexico, for instance, Beneria and Roldan (1987) report that piece rates are associated with jobs at the extreme bottom of social prestige and earnings. Case studies of call centres in both the US and UK present bleak pictures of low wage, high stress jobs made worse by computerized monitoring and piece rates (Drago, 1996; Fernie and Metcalf, 1999). Weller (1999: 205) cites Australian industrial relations decisions identifying piece rates as 'a deplorable practice' associated with unregulated work. Indeed, the close
525

journal ofIndusrial Relations (48)4

association between piece rates and theabsence ofjobsecurityand entitlements in the Australian clothing industry has prompted unions in that country to call for the elimination of piece rates (Weller, 1999: 223). Indeed, criticism of piece work goes back at least to Marx who criticized the 'putting out' system in the needle trades. More recently, a variety of mechanisms have been modelled that might alter the expectation that performance pay increases effort allowing workers to capture greater surplus. First, Gibbons (1987) formalized the traditional union fear of 'ratcheting: a process in which piece rates are set only to be revised down after workers respond with additional effort. At its most extreme such a process might shift the surplus associated with additional effort from the workers to the firm.3 Second, workers may have reduced satisfaction from the increased earnings risk associated with performance pay schemes that may not be fully built into compensating wage differentials (MyersonMilgrom et al., 2002). Third, extrinsic incentives may crowd out the intrinsic motivation to do a good job. Frey and Jegen (2001) review the literature from a variety of disciplines concluding that, in some circumstances, the crowding effect can actually dominate the traditional relative price effect associated with performance pay. Fourth, it is possible that morale is reduced by the greater pay dispersion that results from performance payment schemes. Kennedy (1995) assumes that the effort of individual workers depends, in part, on their morale which is determined by their relative pay status. Thus, contracts that reward only individual performance undermine the morale of the least productive workers and reduce their effort (productivity). Kennedy shows that if the workforce is sufficiently heterogeneous, this effect can dominate the traditional competition for pay and result in lower productivity in a firm using a performance pay scheme compared to one using time rates. Concern over relative pay is certainly evident in the actual design of payment schemes and personnel management texts routinely stress that equitable pay rates are important in creating harmony and productivity (see the studies cited in Akerlof and Yellen, 1988). Moreover, in statistical estimates following the introduction of performance pay, Marsden et al. (2001) show that while there is evidence of an incentive effect for those gaining larger than average performance pay increments, it is 'more than offset' by opposing effects on those with low performance pay increments and by the'demotivating effect arising from difficulties of measuring and evaluating performance fairly' In summary, we face an important empirical issue that has received little or no direct examination. Theory predicts alternative influences of performance pay on job satisfaction. To the extent it allows optimization and an increase in surplus, it should increase satisfaction, all else equal. To the extent, that it creates earnings risk, crowds out intrinsic motivation, lowers morale and results in ratcheting, it should lower satisfaction. To examine which influence dominates we now turn to the data.

Heywood & Wei: Performanace Pay and Job Saifaction

Data and Empirical Methodology

We need data that provides detailed information on the presence of performance pay and on job satisfaction. Specifically, we wish to examine more than a single aspect of job satisfaction and to have a reasonable variation in the types of performance pay. We use the 1988 wave of the National Longitudinal Study of Youth (NLSY). This US survey is a representative sample of more than 12,000 men and women between the ages of 14 and 22 at the time of the first wave in 1979. The combination of attrition and the dropping of some respondents from a military subsample in 1985 result in an employed sample that still exceeds 6600 in 1988. While somewhat dated, the 1988 wave of the NLSY remains important as it provides four measures of job satisfaction and allows us ultimately to identify a half dozen types of performance pay. In addition, the NLSY has the added advantages of two additional years (1989 and 1990) that provide some (but not all) of these measures allowing for panel estimation. Thus, while more than a decade old, this data remains among the most appropriate for our testing purposes and has been used recently by others with related interests (see Geddes and Heywood, 2003). Moreover, Blanchflower and Oswald (2004) confirm that that the basic results from estimating the determinants of job satisfaction have remains remarkably stable across industrial democracies and across time.4 Nonetheless, the estimations remain specific to the US and to the period of the late 1980s. The initial dependent variable is the extent of overall jobs satisfaction as indicated on a four point integer Likert Scale (zero to three). The survey question is identified to respondents as one on 'global job satisfaction' and asks 'How do you like your job? 0) very much dislike; 1) somewhat dislike; 2) somewhat like; or 3) very much like' Identical Likert Scale responses are then solicited to questions asking how well respondents like their co-workers, supervisors and pay. It is these three additional questions that are asked only in 1988. The critical independent variables come from questions identifying two broad types of performance pay: profit sharing and individual performance pay. In each case, the questions simply ask whether or not the respondents receive those forms of pay. The question on individual performance pay goes on to further identify five types of performance pay: piece rates, commissions, tips, bonuses and stock options. We emphasize that some of the criticism of performance pay such as effects on morale are not likely for profit sharing (assuming it is distributed evenly across workers). Moreover, some of the individual performance pay types, say bonuses, may depend on supervisory evaluations of effort while others, say piece rates, more nearly measure output. Finally, these different types of performance pay are associated with different jobs and workers with different characteristics (Geddes and Heywood, 2003). Thus, in total, the many measures present an interesting variation of performance pay types for the empirical examination. We note that the variables on performance pay do not identify the share of

Journal ofIndustial Relations (48)4

earnings that come from these types of performance pay, a limitation shared with most individual data sets (see Heywood et al., 1998). In addition, the NLSY does not have questions identifying types of group performance pay beyond that on profit sharing. Thus, while we identify those workers who received neither profit sharing nor individual performance pay as time workers there may be exceptions. The means of the performance pay variables are very similar to those presented by other researchers using the NLSY (Parent, 2002). The means of the job satisfaction variables are shown in Table 1 separated by method of pay. The measure of job satisfaction is higher for both those on profit sharing and on individual pay compared to those on time rates. This carries over to all of the other three facets of job satisfaction with the most dramatic differences being in satisfaction with pay for which those on performance pay (of either type) report an average of 2.10 compared to those on time rates of only 1.72. The general pattern within the different types of individual performance pay is largely reproduced with those earning commissions, bonuses or stock options reporting higher satisfaction than time rate workers on all four measures. Those earning tips report higher satisfaction than those on straight time on three of the four measures while those on piece rates report higher satisfaction only with pay. Following past research, the values of job satisfaction are fitted to the cumulative normal distribution through ordered probit estimates (see Clark and Oswald, 1996 and Clark, 1997 among many others). The ordered probit

Table 1 Average Job Satisfaction by Payment Schemes

Payment Schemes

Global

StraightTime (3099) Profit Sharing (1839) Individual Pay Schemes (1683): Piece Rates (199) Commission (335) Bonus (868) Stock option (60) Tips (221) Sample Size (6621)

2.17 2.29 2.32 2.11 2.31 2.38 2.58 2.24 6621

Job Satisfaction Co-workers Supervisor 2.40 2.56 2.46 2.60 2.47 2.63 2.29 2.44 2.48 2.67 2.53 2.65 2.53 2.73 2.38 2.66 6577 6513

Pay 1.72 2.10 2.10 1.91

2.21 2.14 2.41 1.84 6598

Note: Questions on job satisfaction and their coding: 1. Global job satisfaction: how (do/did) you feel about (the job you have now/your most recent job)? 0 - dislike very much; 1 - dislike somewhat; 2 - like fairly well; 3 - like very much. 2. Job satisfaction with co-worker: Job satisfaction, most recent job - friendly co-workers? 0 - not true at all; 1 - not too true; 2 - somewhat true; 3 - very true. 3. Job satisfaction with supervisors: Job satisfaction, most recent job - supervisor is competent in job? 0 - not true at all; 1 - not too true; 2 - somewhat true; 3 - very true. 4. Job satisfaction with pay: Job satisfaction, most recent job - income is good? 0 - not true at all; 1 - not too true; 2 - somewhat true; 3 - very true.

Heywood & Wei: Performanace Pay and job Satisfaction

estimation follows appropriately when the dependent variable has a natural ordering, such as from least to most satisfied (see McKelvey and Zavonia, 1975) and can be used to predict the probability of reporting each value for job satisfaction for variation in the values of the independent variables.

Table 2 Variable Means and Standard Deviations (n=6545)

Variables Mean Piece rate 0.030 Commission 0.050 Bonus 0.131 Stock option 0.009 Tips 0.033 Profit sharing 0.277 Female 0.467 Black 0.248 Hispanic 0.125 Married 0.490 0.383 Supervisor 27.047 Age Education 12.892 Tenure 145.28 Hours 41.404 Union 0.120 Public 0.118
Plant size
Pension

Std.Dev Meanings 0.171 Dummy=1 if worker is paid by a piece rate 0.218 Dummy=1 if worker receives a commission 0.338 Dummy=1 if worker receives a bonus 0.095 Dummy=1 if worker receives a stock option 0.179 Dummy=1 if worker receives tips 0.447 Dummy=1 if worker receives profit sharing 0.499 Dummy=1 if respondent is female 0.432 Dummy=1 if respondent is African American 0.331 Dummy=1 if respondent is Hispanic 0.500 Dummy=1 if respondent is currently married 0.486 Dummy=1 if respondent is a supervisor 2.251 Years of age 2.341 Years of completed education 144.96 Months of tenure on current job 8.540 Weekly hours of work 0.325 Dummy=1 if respondent is a union member 0.322 Dummy=1 if respondent's primary employer is the

Childcare Health Ins

Vacation

government 514.59 2396.43 The number of employees in respondent's workplace 0.510 0.500 Dummy=1 if respondent has an employer provided pension plan 0.042 0.201 Dummy=1 if respondent has employer provided

cfhildcare
0.737
0.782

LogPay Promotion

2.018 0.246
0.098

Injury
AFQT

40.464

0.440 Dummy=1 if respondent has employer provided health insurance 0.413 Dummy=1 if respondent has employer paid vacation days 0.512 The natural log of hourly earnings 0.430 Dummy=1 if respondent receives any promotion since last interview 0.297 Dummy=1 if respondent suffered from injury on current job since the last interview 29.552 Armed forces qualification test

Source: 1988 wave of NLSY.

Journal ofIndustial Relations (48)4

The independent variables are shown in Table 2 and their choice largely follows the economics literature on job satisfaction. They include demographic, employment relations and human capital variables. Among these is the hours of work which allows us to distinguish between full and part time workers. In addition, we will use occupation controls (8 categories), industry controls (13 categories), region controls (5 categories), the provision of a series of fringe benefits, actual earnings and comparison earnings as explanatory variables.The comparison earnings measure is based on a traditional log earningsequation and is the predicted earnings for each individual which proxies what an otherwise equal respondent would be expected to earn (Clark and Oswald, 1996).

Estimation of the Determinants of Job Satisfaction

Table 3 presents the estimation of overall job satisfaction using the 1988 wave. The controls act largely as expected with minorities and those with an injury reporting lower job satisfaction and supervisors, those with fringe benefits and with chances for promotion reporting higher job satisfaction. Those with higher earnings report greater overall job satisfaction and those with higher

Table 3 Estimates ofJob Satisfaction (1988 NLSY)

Satisfaction Satisfaction Satisfaction Global Job Satisfaction with Co-workers with Supervisor with Pay
Constant

(1)

(2)
2.322**

(3)
2.089**

(4)
.8897**

2.486**

(7.63)
.1605** Individual Performance Pay (4.247) .0937** Profit Sharing (2.507) -.1478** Female (3.469) -.2687** Black (6.709) .0413 Hispanic (0.846) .0979** Married (3.262) .0745** Supervisor (2.331)
Age Tenure

(6.452)
.2424

(5.947)
.0220

(2.736)
.2438**

(0.585)
-.0100

(0.567)
.0656*

(6.515)
.1176**

(0.247)
-.0668

(1.414) -.3148** (7.325)

-.0445

(1.716) -.0913** (2.038) -.2066** (4.949)

-.0278

(3.122)
-.0788*

(1.875) -.1543** (3.898)

-.0001

(0.873)
.2777

(0.556)
-.0089

(0.002)
.1096**

(0.860)
-.0037

(0.267)
-.0437

(3.673)
.0009

(0.106)
.0058

(1.299)
-.0002

(0.029)
-.0144**

.0069

(1.042)
-.0001

(0.817)
.0020

(0.028)
-.0003**

(2.251)
.0001

(0.090)

(1.470)

(2.531)

(0.713)

Heywood & Wei: Performanace Pay and job Satisfaction

---- - - -

---

__ - - ----

Union
Establishment Size Pension
Hours

Child Care
Vacation Health

(4) (3) (2) Satisfaction Satisfaction Satisfaction Satisfaction with Co-workers with Supervisor with Pay .3491 -.1889** -.1316** .1284** (6.675) (3.447) (2.350) (2.287) -.0001 -.0001 -.1687** -.0003** (0.310) (2.246) (4.710) (1.368) .1 826** -.0078 .0927** -.0500 (4.444) (1.128) (0.185) (2.235) .0075** .0018 .0018 .0039** (4.299) (2.190) (0.907) (0.915) .1337** .2486** .1759** .1931** (2.026) (2.740) (2.224) (3.349) .0757* .0583 .0223 -.0625 (1.215) (1.365) (1.774) (0.454) .1613** -.0340 .2026** .0212 (3.287) (0.596) (3.977) (0.397)
(1) Global Job
-.0319

Public
Promotions
Injury Wage

(0.530)
.2533

(7.153) -.1490* (7.153) .2176** (6.666)

-.7500

-.1528 (2.246) .0694* (1.805) -.0577 (1.134)

.0158

-.0584

-.0653

(0.938)
.1341**

(3.701)
-.1 156** (2.443) .0660*

(0.397)
.0515

(1.749)
-.2369

Comparison Wage SMSA Urban

(4.967)
.0419

(0.308)
-.0369

(1.457)
-.0934**

(1.090) .1351** (3.772) -.2167** (4.835) 1 .002** (46.49) -.9123** (6.135)

-.0323

(0.095)
-.0142

(0.778)
.0447

(2.070)
.0898*

(0.752)
.0365

(0.305)
Regions Industry Occupations Mu(1)
YES YES YES

(0.886)
YES YES YES .5377**

(1.863)
YES YES YES .5317**

(0.790)
YES YES YES

Mu(2)
Chi-squared
N

.7803** (25.46) 2.280** (63.76)

484.0** 6545

.7706**

(12.55)
2.048**

(21.14)
1 .667**

(34.40)
2.382** (80.69)
1435.85** 6598

(40.36)
221.9** 6589

(54.06)
256.1 ** 6577

Note: *Significant at the 10 percent level. "Significant at the 5 percent level.

Journal ofIndusial Relations (48)4

comparison income report lower overall job satisfaction.Thus, as actual earnings are further above predicted earnings, the worker reports greater satisfaction. The surprising coefficients are those for work hours and unionization which are both positive and that for women which is negative. These results have been replicated in other waves of the NLSY from the 1 980s and may reflect the relatively young age of the cohort (see Donohue and Heywood, 2004). Importantly, both measures of performance pay emerge with large and statistically significant coefficients. Thus, despite 50 explanatory variables those receiving either individual performance pay or profit sharing report greater overall job satisfaction, all else equal. The magnitude of the effects is explored by taking all variables other than performance pay to be at their mean levels and predicting the satisfaction probabilities altering the payment method. Thus, the first column of Table 4 shows a predicted probability of having the lowest job satisfaction of being .033 for those with neither type of performance pay. This contrasts with a smaller .026 probability for those with profit sharing and a still smaller .022 probability for those with individual performance pay and .018 for those with both types of performance pay. Thus, the presence of both types of pay (holding actual earnings constant) cuts the probability of being in the least satisfied category roughly in half. Conversely, performance pay increases the probability of having the most job satisfaction as shown in Table 2.

Table 4 Predicted Probabilities ofJob Satisfaction

Without

performance
Very much dislike Somewhat dislike Somewhat like Very much like

Profit sharing
.026 .091 .485 .398

pay .033 .105 .481 .381

Profit sharing Individual performance and individual performance pay pay .018 .022 .071 .083
.486 .409 .487 .424

Note:These are projects based on the estimation reported in Column 1 ofTable 3. All variables are held at their mean other than the performance pay indicators.

We now exploit the three facets of job satisfaction available in the 1988 wave by replicating our estimation from column one with each of these measures. The second column of Table 3 shows the estimation of satisfaction with co-workers. This estimation is remarkably flat with only a small handful of coefficients statistically significant. Union members and those in larger firms are less satisfied with their co-workers while those with a chance of promotion and with childcare are more satisfied. There is no indication that performance pay influences satisfaction with one's co-workers. Thus, the notion suggested by Drago and Garvey (1998) that individual performance pay may generate less 'helping effort' and more

Heywood & Wei: Performanace Pay and Job Satisfaction competition among co-workers thereby generating more negative feelings toward co-workers receives no support. Similarly, the contention that profit sharing should increase helping effort and generate more positive feelings gets no support. This contrasts with Rotemberg's (1994) claim that profit sharing may elicit better attitudes toward co-workers and a shift toward altruism within the firm. The third column shows the estimation of satisfaction with their supervisor. While not as pronounced as the results on overall satisfaction, many of coefficients follow the same pattern with blacks, females, union members and the injured reporting less satisfaction and those with higher wages, childcare and chances of promotion reporting greater satisfaction. There is no evidence that individual performance pay influences satisfaction with supervisors but there is weak evidence that those on profit sharing feel more satisfied with their supervisor. This is consistent with work from the German Socio Economic Panel suggesting that conflict with one's supervisor is reduced by the presence of profit sharing (Heywood, Jirjahn and Tsertsvadze, 2005a). The final column shows the estimation of satisfaction with pay. The controls follow a similar pattern to that already established with females, blacks and those injured reporting lower satisfaction with pay. Those with fringe benefits, chances of promotion and those married reporting greater satisfaction with pay. The earnings and comparison earnings variable follow the results from overall job satisfaction. Not following the earlier results is the finding that older workers have lower satisfaction with their pay all else being equal.Yet, following the overall job satisfaction results, are those for individual performance pay and profit sharing. Both emerge with large positive and significant coefficients. Thus, across all facets and the overall measure, performance pay, when statistically significant, positively influences job satisfaction. There is evidence of such an influence in the overall measure, the pay measure and the supervisor measure. The pay measure results are particularly interesting as the level of pay is controlled for in the estimations so the correlations with performance pay do not simply reflectthefactthatthose on such schemes may earn morethan those not on such schemes. Instead, there is an effect of the pay scheme independent of the level of earnings. This, in particular, seems consistent with the notion that tying pay to performance allows workers to optimize. We now combine all three waves of the NLSY to control for fixed effects. Such an effort may be critical to control for sorting. Indeed, Lazear (2000) suggests that 56 percent of the increase in productivity associated with piece rates results from attracting inherently more productive workers (sorting). These same workers may be more likely to report job satisfaction raising the possibility that performance pay is not genuinely associated with greater job satisfaction merely that it attracts those who would otherwise report being more satisfied under any method of pay. To control for fixed effects (worker specific effects on job satisfaction) we estimate fixed-effects ordered probits using the within worker variation across

Journal ofIndustrial Relations (48)4

the three waves.5 The specification used in Table 3 is replicated recognizing that variables which show no variation across the years for a given worker will drop out of the estimation (such as race and gender). Also those workers who have the identical level of job satisfaction in all three years add nothing to the underlying likelihood function and drop out of the estimation as well. Finally, some observations are only in the panel two of three years so the panel is unbalanced with a resulting final number of observations of 8859 across the three waves. Column 1 of Table 5 summarizes the results. Most of the controls carry over with same sign and with statistical significance. The noticeable changes include the emergence of a strong negative effect for additional tenure and the loss of any union effect. The latter result suggests that the previous influence attributed to unionization may be a result of the individuals who are sorted into unionization. The critical measures of performance pay both emerge with the same sign, rough size and levels of statistical significance. Thus, even after accounting for individual worker effects, those receiving indiyidual performance pay or profit sharing report higher overall job satisfaction. We next use the disaggregated measure of individual performance pay to isolate the separate influences of receiving piece rates, commissions, bonuses, stock options or tips. Thus, the fixed effect estimate of job satisfaction now

Table 5 Panel Estimates ofjob Satisfaction (i988-9ggo NLSY)

(1)
Global Job Satisfaction
Individual performance pay Piece rates
Commissions
Bonuses

(2)
Global Job Satisfaction

(3)
Global Job Satisfaction (MEN)

(4)
Global Job Satisfaction (WOMEN)

.1537**

(3.224)
-.3095**
-.2697*
-.2104

(2.725)
.2814**

(1.697)
.5538**

(1.083)
-.0351

(3.090)
.1322**

(4.671)
.1613**

(0.226)
.0452

(2.271)
Stock options
Tips .5882**

(2.108)
.6603**

(3.392)
.2937**

(2.821)
-.1644

(2.314)
Profit sharing

(0.882)
.1076*

(0.483) .5737** (1.965) .6735** (3.841)

.0422

.1231** (2.694)
.0763*

.1134**

(2.314)
.0823**

(1.677)
.0348

(0.614)
.1177**

Married Supervisor

(1.935)
-.3481 **

(2.084)
-.3488**

(0.631)
-.4293**

(2.001) .2955**

(8.059)

(8.055)

(7.121)

(4.439)

Herywood & Wei: Perfotrmanae Pay and job Satifaciion

(1)
Global Job Satisfaction
Tenure
Union

(2)
Global Job Satisfaction
-.0006 (4.879) -.0455 (0.721) -.0001 (0.310)
.2071 **

(3)

Global Job Satisfaction (MEN)

-.0007**

(4) Global Job Satisfaction

(WOMEN)
-.0007**

Establishment size
Pension
Hours

-.0006** (5.045) .0228 (0.362) -.0001

(0.278)
.2001 **

(4.092) .2389** (2.854) -.0001 (1.117)

.4000**

(3.774))
.1978*

(1.868)
-.0001

(0.323)
-.0178

(3.779)
.0062**

(3.903)
.0054** (2.036) .2523**

(5.328)
.1001 **

(0.220)
.0003

(2.342)
Childcare
Vacation
.2625**

(2.805)
.0439

(0.064)
.5175**

(3.260)
-.0248 (0.384)
.2718**

(3.125)
.0295 (0.456)
.2807** (4.137) .1967**

(0.357)
.0691

(4.834)
-.1896*

(0.790)
.4894**

(1.841)
.2081 **

Health Public Promotions

Injury

(4.012)
.2067**

(5.300)
.3238**

(1.981)
-.0819

(2.746)
.3313**

(2.612)
.3310**

(7.034)
-.3704**

(7.011)
-.3671 **

(2.844) .3566** (5.587)

-.4976**

(0.323)
.3985**

(5.535)
-.3529**

(5.051)
Wage
.3491 **

(5.001)
.3386**

(5.474)
.4169**

(2.705)
.3515**

(7.022)
Comparison wage
SMSA -.7065**

(6.791)
-.7604**

(5.300)
-1.578**

(4.503)
-.4625

(4.526)
-.0476

(4.871)
-.0553

(6.701)
-.2322**

(1.633)
-.0161

(0.671)
Urban Regions Industry Occupations Mu(1)
.0214

(0.779)
.0296 (0.404)
YES YES YES 1.41 6**

(2.503)
.1291

(0.149)
-.1991*

(0.293)
YES YES YES 1.417**

(1.388)
YES YES YES 1.550**

(1.794)
YES YES YES 1.286**

(34.80)
Mu(2)
N

(34.80)
3.793**

(25.60)
4.078**

(23.75)
3.525**

3.782**

(77.17)
8859

(77.11)
8859

(55.95)
4944

(52.85)
3915

Note: *Significant at the 10 percent level. "Significant at the 5 percent level.

Journal ofIndusial Relations (48)4

has six indicators of performance pay. The results are presented in column 2. Profit sharing and all of the five measures of individual performance pay have statistically significant coefficients. There is, however, an interesting pattern. Piece rates emerge with a negative coefficient even as the other four individual performance pay measures and profit sharing have positive coefficients. It is possible that the negative coefficient for piece rates reflects either the morale effect (Kennedy, 1995), the deterioration of helping effort and coworker relations (Drago and Garvey, 1998) or the ratchet effect (Gibbons, 1987). Yet, these same arguments would seem to apply to commissions which are often taken as a sales equivalent of piece rates. Interestingly, Geddes and Heywood (2003) show that there are actually substantial differences between those who receive piece rates and those who receive commissions. While piece rate workers are disproportionately shorter tenure workers and women (Goldin, 1986), those on commissions are longer tenure workers and disproportionately male when compared to other workers in sales. We follow-up the suggestion that gender may be an important related variable by estimating the fixed effect probit separately by gender. While this reduces sample size, some basic differences are evident as shown in the third and fourth columns of Table 5. The pension and hours results evident in the combined sample are generated exclusively by men but the childcare and marital status results evident in the combined sample are generated exclusively by women.6 There are substantial differences in the role of performance pay as well. The male results largely mimic the combined sample with the exception of tips for which there is an insignificant coefficient. The female results reveal a strikingly different pattern. First, profit sharing is not even close to being important for women. This suggests that while men value profit sharing, holding the wage constant, women do not value profit sharing. This result fits with the conjecture that women will not be well motivated by group schemes as such schemes are common in circumstances of interdependent productivity and in these circumstances the lower labour force attachment of women places them at a disadvantage. The point is not to conflate job satisfaction with motivation but rather to stress that the mutual monitoring that is associated with profit sharing may have a less positive influence on those workers least able to respond to such monitoring with additional effort. Thus, Heywood et al. (2005b) present German evidence that while profit sharing causes greater cooperation among men, it does not do so for women. Thus, if women are less able to respond to group incentives, they may feel greater peer pressure and so less job satisfaction. Second, the pattern of individual performance schemes is different for women. They do not show the same negative influence from piece rates or the same positive influence from commission or bonuses. In general, there appears to be less of a role played by methods of pay in the job satisfaction of women. The absence of a negative influence from piece rates for women may reflect the association of piece rates with circumstances without interdependent

Heyzvood & Wei: Performanace Pay and job Satisfaation productivity providing more flexibility for home and work responsibilities (Heywood and Wei, 1997).

Conclusion
The object of this article has been to test for the direct influence of performance pay schemes on job satisfaction. There are many contradictory and complex implications from theory but a basic building block is that such schemes reward productivity and so allow workers to optimize in a way that a salary or hourly wage does not. Thus, we anticipated that both individual performance pay and profit sharing should be associated with greater job satisfaction even holding the wage constant. In general this anticipation has been confirmed but there remain some interesting patterns that suggest a more complex association. In the cross-sectional estimations both individual pay schemes and profit sharing are associated with greater job satisfaction. These associations carried over to two of the three facets with the results for satisfaction with pay being extremely strong. In panel estimates, holding fixed worker effects constant, the same two performance pay indicators retained strong statistical significance. The fixed effect estimates then disaggregated the individual performance pay variable into five constituent parts. The indicators for commissions, tips, stock options and bonuses all joined profit sharing in having a strong positive association with job satisfaction holding constant the level of earnings. Interestingly, piece rates emerged with a negative association. Dividing the results by gender revealed that most of the associations were being generated by males. The differences across genders suggest that the link between payment method and pay need not be universal. Women in particular seem to get no additional satisfaction from profit sharing schemes, a result we suggest may reflect their relative disadvantage in circumstances of team production where there is a greater premium on labour force attachment. We note that our results are specific to the United States and to the time frame of our data. They certainly deserve to be examined in other countries and in more recent years. In addition, detailed information on the share of earnings associated with performance pay schemes might be able to shed further light on the relationship between such schemes and job satisfaction.

Acknowledgement
The authors thank the Centre for Public Policy Studies at Lingnan University for a travel grant that allowed the authors to work together and recognize the valuable comments of W.S. Siebert and David MacPherson as well as those of seminar participants at Florida State University and the University of Melbourne.

Notes
1 Donohue and Heywood (2004) show that the gender difference in job satisfaction may not exist among younger US workers.

537

Journal ofIndustrial Relations (48)4

2 This begs the question why all workers are not paid with piece rates but technology of production often prohibits identifying individual contributions or pieces (Alchian and Demsetz, 1972) and in these circumstances appropriate piece rates cannot be established. 3 This view would seem to depend on the presence of monopsony power of the firm in the labor market. 4 They also show that while overall job satisfaction has been stable in the UK it has declined recently in the US. S The estimation was performed with specific ordered probit with fixed effect programs in Limdep 8.0. 6 The fact that men and women value different fringe benefits and that these differences are reflected in job satisfaction has been shown by Donohue and Heywood (2004).

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W)JIR
Journal ofIndiustrial Relations (48)4
0 Industrial Relations Society of Australia

RESEARCH NOTE

SAGE Publikations Ltd, London, Thousand Oaks and New Delhi ISSN 0022-1856, (48)4 541-546 [DOI: 10.1 177/0022185606066144]

Recent Developments in Co-determination atVolkswagen: Challenges and Changes

Thomas Haipeter
Institute Work and Technology, Germany

Introduction
For well over a decade, there has been a growing interest in the institution of co-determination by German social scientists. While co-determination is seen from different angles, there is one denominator common to all research. It is the question about the risks and opportunities of co-determination in an age of far-reaching and radical changes in the worlds of work and economy, characterized by the globalization of production and the financialization of corporate governance. Is co-determination being rendered irrelevant by these changes? Or can co-determination come to play a role of its own in the economic process - as a social and democratic corrective? A very interesting example of the challenges and changes of co-determination is Volkswagen (VW). The example of VW shows that globalization and financialization can be accompanied by new forms of regulation of industrial relations and enhanced opportunities for co-determination to participate in entrepreneurial decision-making processes. This view is based on evidence from extensive field research in the archives of the company and on interviews with experts of management and the works council at all levels in the company.

Contact address: Thomas Haipeter, Institute Work and Technology, Germany, Munscheidstral3e 14,45886 Gelsenkirchen, Germany. [email: haipeter@iatge.de]