Performance-related pay for shop-floor workers. A model for the proper selection of performance indicators

Incentive pay or performance-related pay (PRP) has a long standing tradition in economic analysis and policymaking. Many different types of PRP schemes have been developed over the years and most of the literature has shown that these plans do have a marked impact on employee and organization performances. A particularly critical factor in the design of a PRP plan concerns the choice of parameters or indicators on which variable pay should be determined. The research goal of this work is to develop an analytical model that can help companies to identify the optimal set of these parameters. The model has been developed through an empirical research methodology involving a large sample of companies which have adopted a PRP scheme. A set of strong relationships have been identified between some company characteristics and different types of indicators that should be employed for determining the variable bonus for shop-floor workers.