Does a Change in Performance Pay have an Effect on Workers’ Productivity? - An empirical analysis of a change in performance pay in Company X.

Abstract

This thesis investigates whether a change in performance payment (PP) have an effect on workers’ productivity. During the period 2009 to 2015, dealer stores affiliated Company X experienced several PP changes. Some dealer stores experienced an increase in PP, other dealer stores experienced a reduction in PP, whereas some experienced no change. The dealer stores are divided into two groups, those dealer stores who experienced an increase in PP and those who did not. To analyze whether the change in PP affect workers’ productivity, and to address the problem of endogeneity, I have conducted a natural experiment and a differencein-differences method (DD), such that the differences between the two groups before and after the PP change are being compared.

The main analysis is based on the PP change that occurred in 2012, and results indicate a small positive effect, which is not statistically significant. Hence, there is no evidence to support the hypothesis that the change of PP leads to higher sales for the workers at those dealer stores who receives an increase in performance pay in 2012. A greater PP change occurred in 2014, and that effect is greater and statistically significant.