Does Profit Sharing Affect Productivity?

Abstract

Existing research tends to show that profit-sharing plans for employees are associated with higher company productivity and profitability, though the causality and mechanisms are unclear. This study uses new data from a survey of 500 U.S. public companies, and panel data on corporate performance, to examine the relationship between productivity measures and the adoption and presence of profit sharing. Controlling for a variety of influences on productivity, profit sharing adoption is found to be associated with average productivity increases of 4-5%, with no subsequent positive or negative trend. The productivity increase is dispersed; it is found to be larger for small companies and for cash plans, and to be unaffected when controlling for personnel policies which may affect productivity. There is, however, no evidence on the mechanisms through which profit sharing may affect productivity, since there are no strong interactions with information-sharing or other policies in affecting productivity.