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Bonus compensation and productivity: evidence from Indian manufacturing plant-level data

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  • Natalie Chun
  • Soohyung Lee

Abstract

This paper examines whether bonus compensation for managers and workers matter for manufacturing plant productivity. We use a model based on a Cobb-Douglas production function where bonus incentives can increase worker effort and attract more skilled workers leading to increases in plant productivity. The effect of bonus compensation policies on productivity is estimated by using a representative sample of Indian manufacturing plants between 1999 and 2006. We find that conditional on a plant’s observable and unobservable characteristics, allocating a higher proportion of compensation to bonus pay for managers and workers has a significant positive effect on productivity. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Natalie Chun & Soohyung Lee, 2015. "Bonus compensation and productivity: evidence from Indian manufacturing plant-level data," Journal of Productivity Analysis, Springer, vol. 43(1), pages 47-58, February.
    • Handle: RePEc:kap:jproda:v:43:y:2015:i:1:p:47-58
    DOI: 10.1007/s11123-014-0421-z
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    More about this item

    Keywords

    India; Bonus compensation; Productivity; Manufacturing; O12; L60; M52;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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