Incentives in manufacturing: the carrot and the stick

To what degree do different incentives substitute for or complement each other in the manufacturing sector? Although this question has received considerable attention on the plant level, relatively little information is available on the subject for the U.S . manufacturing sector as a whole. This study presents the results of a small survey designed to elicit information so as to determine the contours of this important problem. The study focuses on both positive and negative incentives, that is, the carrot and the stick. Positive incentive plans tie the compensation of the individual workers directly with the work that is done and are of two basic types: Individual incentives include piecework or various types of bonuses for exceeding norms; Group incentives tie the bonus to the performance of the group as a whole, for example, profit-sharing plans, stock ownership plans, bonuses based on aggregative indicators such as production or productivity . Negative incentives are threats or actual use of punishment, including financial penalties . These include the hiring of additional supervisors to monitor the performance of workers or firing workers for poor performance . Although some borderline cases can be cited for which it is difficult to determine whether a particular incentive is positive or negative, in most cases the distinction should be relatively clear. For the most part, both positive and negative incentives are unilaterally imposed, that is management-controlled (but often constrained by union contracts), in contrast to quality circles and labor-management committees which are bilateral or cooperative efforts . I do not analyze these latter measures because they raise a set of considerations far from the major theme of this study . Because both positive and negative incentives serve many of the same ends, they can be substitutes for each other. However, it is also possible that some incentives are complementary to each other. For instance, a high rate of supervision may lead to a high rate of firing (a conjecture not supported by the data below) or individual and group incentives may accompany each other (a proposition which does receive support) . Current economic theory tells us little about such relations of complementarity or substitution ; such an analysis must, therefore, be carried out primarily on an empirical level.