The Hidden Costs of High Performance Work Practices : Evidence from a Large German Steel Company

The authors use monthly data from 25 production units in a German steel plant over the period 1992 to 2001 to test for impacts of teamwork and performance-related pay on productivity, accidents and absence rates. They find that teamwork and performance pay incentivize workers to increase quantity at the expense of quality and to run the machines for long hours instead of spending time on maintenance. Absenteeism increases when a combination of teamwork and performance pay is applied to production units that previously had neither. The results suggest that teamwork and performance pay can create hidden costs for manufacturers and do not necessarily help to raise worker productivity