Why do firms adopt collective incentives? An analysis of family and non-family firms
| DOI | https://doi.org/10.1108/ER-10-2021-0453 |
| Published date | 07 February 2023 |
| Date | 07 February 2023 |
| Pages | 721-742 |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations,Employment law |
| Author | Meysam Salimi,Edoardo Della Torre,Raffaele Miniaci |
Why do firms adopt collective
incentives? An analysis of family
and non-family firms
Meysam Salimi
I
ESEG School of Management, UMR 9221 –LEM –Lille
Economie Management,
Lille, France
Edoardo Della Torre
University of Milan, Milan, Italy, and
Raffaele Miniaci
University of Brescia, Brescia, Italy
Abstract
Purpose –By combining structural contingency theory and socio-emotional wealth (SEW) theory, this study
aims to identify the organizational determinants of collective performance-related pay (PRP) adoption by
examining the interplay between a firm’s ownership characteristics (i.e. family or non-family ownership) and
other organizational characteristics.
Design/methodology/approach –This study adopts a quantitative approach, conducting empirical
analyses of a longitudinal dataset of 4,222 Italian companies in the manufacturing sector for 2009–2017. The
probability of adopting collective PRP schemes is estimated using the average marginal effects of the probit
and linear probability models (LPMs).
Findings –The results show that family firms are less likely to adopt collective PRP schemes than non-family
firms. Moreover, ceteris paribus, firmcharacteristics such as size, age and past (firm and labor) productivity are
important determinants of firms’adoption of collective incentive pay; however, the significance and magnitude
of their effects vary depending on a firm’s ownership structure.
Originality/value –This analysishas two major elements of novelty. First, it increases the knowledge of how
organizational contingencies differ in family versus non-family contexts regarding pay decisions. Second, it
brings new theoretical perspectives to the pay debate by combining structural contingency theory and SEW
theory, thus developing new and fertile theoretical grounds for advancing our understanding of the pay
determinants. To the best of authors’knowledge, this is one of the first (if any) studies to shed light on collective
PRP in family and non-family firms.
Keywords Pay incentives, Family and non-family firms, Structural contingency theory, Socio-emotional
wealth theory, Productivity, Italy
Paper type Research paper
Introduction
The literature has long suggested that firms adopt performance-related pay (PRP) schemes
because of “flexibility-related motivations”(e.g. to deal with a high variance in profits),
“productivity-relatedmotivations”(e.g. to improve labor productivity, or to reduce monitoring
costs, see Doucouliagos et al., 2020;Kruse,1996;Nyberg et al., 2018) and “attraction/retention-
related motivations”(i.e. to better manage talented workers with higher human capital;
Cruz et al., 2011;Long and Fang, 2015). Practitioners, social partners, policymakers and
industrial relations scholars have increasingly focused on the operation and effects of
incentive pay schemes (Chowhan,2016;Pendleton and Robinson, 2017) to analyze the outcome
(e.g. Curran and Walsworth,2014;Dahl and Pierce, 2020;Doucouliagos et al., 2020) and process
Firms adopting
collective
incentives
721
The paper is basedon data collected for a projectfunded by the Industrial Association of Brescia (AIB),
entitled “Labor contracts, incentivesfor productivity and innovation: theoretical and empirical analysis.”
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0142-5455.htm
Received 26 October 2021
Revised 5 July 2022
21 October 2022
18 January 2023
Accepted 19 January 2023
Employee Relations: The
International Journal
Vol. 45 No. 3, 2023
pp. 721-742
© Emerald Publishing Limited
0142-5455
DOI 10.1108/ER-10-2021-0453
(Miceli and Heneman, 2000). However, despite the importanceof incentive pay, little is known
about its determinants and very few studies have explored the relationship between firm
characteristics and the decision to adopt a PRP scheme (e.g. Bayo-Moriones et al., 2013;Jones
and Pliskin, 1997;Kang and Yanadori, 2011;Long and Fang, 2015;Long and Shields, 2005).
Moreover, among the various forms of PRP, the literature has mostly focused on individual
incentives (e.g. piece-rate plans and bonuses based on individual performance –see Gerhart
and Fang, 2014;Maltarich et al., 2017) or does not distinguish individuals from collective
incentives (e.g. Damiani and Ricci, 2014;Damiani et al., 2019;Pompei et al., 2019), whereas
collective incentives (e.g. gain-sharing and profit-sharing) are largely under-researched
(Nyberg et al., 2018). This is surprising considering that in several European countries, the
adoption of collective incentives has increased in recent years(Doucouliagos et al., 2020) and
that of individual incentives has decreased (Freeman and Kleiner, 2005).
Accordingly, this study investigates the organizational factors that affect the adoption of
collective PRP schemes in family and non-family owned Italian manufacturing companies.
Indeed, the literature suggests that family firms may differ from non-family firms in terms of
the management of employee relations, as family firms tend to pursue goals (i.e. emotional,
social and affective) that managers in non-family businesses may consider trivial
(Gomez-Mejia et al., 2007). Professional management in family firms relies on personal and
less formal procedures, centralized decision-making processes and higher levels of internal
capabilities and resources (Daily and Dollinger, 1992). Additionally, within family firms, the
allocation of strategic decision-making power is clearer than in non-family contexts
(Fern
andez and Nieto, 2006) and the high level of informality in management procedures
allows for more interactions and better organization of activities, making the implementation
of strategies (such as pay policies) easier (Moreno-Men
endez and Casillas, 2021). Therefore,
consistent with the literature, our study contributes to research on the determinants of PRP
by distinguishing between family and non-family firms and analyzing how the influence of
age, size and past productivity on a firm’s decision to adopt collective PRP schemes varies
depending on the ownership structure (i.e. family or non-family owned) of the company.
To this end, we used a panel dataset of Italian manufacturing firms from 2009 to 2017
combining financial statements from Bureau van Dijk AIDA (Italian company information
and business intelligence, https://aida.bvdinfo.com/) and information on the collective
agreements signed by the same companies available from the Observatory on the Labor
Market and Industrial Relations in Italy (OSMER, http://osmer.org/). Italy is the fourth
country in Europe in terms of the prevalence of incentive pay (following Finland, Sweden and
France) and exhibits both a high incidence of and a significant increase in the diffusion of
incentive schemes (Bryson et al., 2012). These features are largely explained by the fact that
Italy benefits from a strong industrial relations system that favors the adoption of collective
PRP more than individual PRP (Casnici et al., 2020;Della Torre, 2019).
This study contributes to the literature on compensation in several ways. First, existing
researchhas shown that the diffusionof group-based profit-sharingand gain-sharing schemes
(i.e. collective PRP) has risen, whereas traditional piece-rate payments are declining
(Doucouliagos et al.,2020;Freeman and Kleiner, 2005). By focusing on the factors driving
the adoption of collective PRP, this study enhances our understanding of these trends, as
emphasized by recent calls for studying the conditions and contingencies that affect the
adoption of this formof PRP (Nybe rget al.,2018). Second, considering the relevance of family
firmsin several European countries,including Italy,this study increases our knowledgeof how
organizational contingencies differ in these contexts compared to non-family contexts
regarding pay decisions. It also opens new theoretical perspectives on the pay debate by
combiningstructural contingencytheory (Donaldson, 2001) andsocio-emotional wealth (SEW)
theory (Gomez-Mejia et al., 2007), thusdeveloping fertile theoreticalground for advancing our
understanding of pay determinants infamily firms compared to non-familyfirms. Third, the
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