performance-related pay in finland
an interesting study by hannu pickkola assessed the impact of performance-related pay on the performance of workers and firms in finland over the 1996-2002 period. Both productivity and profitability increased by about 6 percent as long as performance-related compensation exceeded 3.6 percent of the workers salaries. the alignment of the incentives of the firms and workers clearly resulted in a mutually beneficial outcome.
it is important to note that performance-related pay is most effective in environments where performance is measured at the individual level rather than at the group level. foe example,instituting a performance-related pay for teams may result in "shirking" by individual workers in anticipation that they would "free ride" on other teammates performance. furthermore, when a worker's responsibilities are contractually ambiguous,performance may be more concentrated in reward-connected tasks.
these reasons explain for the most part the propensity to use performance-related pay more in certain occupations than in others. the following table shows the average share of employees receiving performance related pay in finland in selected occupations over the 1996-2002 period.As expected,the it and manufacturing sectors, where quality is relatively easier to measure at the individual level,top that list with about 46 and 33 percent respectively.construction,on the other hand.where most of the work is team-based gets the lowest spot with only about 17 percent.