Mesurable determinants of method of pay

Abstract: Aim of the study: The aim of this study in to determine if different methods of pay arerelated to the cost of monitoring the workforce in a predictable way. Thisis done by measuring the effect of variables that are hypothesized toaffect firm’s choice of method of pay. Data and model: The data used in the study originates from the European CompanySurvey, 2009, and the countries of interest in the study were Sweden,France, Germany and the United Kingdom. By using data on differentdeterminants of method of pay, a multinomial probit (MNP) model wasfitted, using a maximum likelihood procedure. The specified, dependentvariables in the model are standard rate, individual piece rate and grouppiece rate. Results: The variables four the four countries have similar effect on the method of pay. Size has the largest impacts on the probability of the method of payamong the variables and presents a negative impact between size andstandard rate in the manufacturing industry. Interestingly, the newlyapplied variable, the proportion of fixed term contract had significanteffects in United Kingdom and may be a determinant of the method ofpay, positively related to the group piece rate scheme. Further, proportionof high skilled sector, the compared productivity to establishments in thesame sector and within the establishment and proportion of femaleworkers provides significant results for the probability of the differentmethods of pay. Conclusions: The results of the determinants of method of pay seem to be fairly in linewith the theoretical predictions in Sweden, Germany, France and theUnited Kingdom, apart from systematic differences between thecountries. The study indicates that the method of pay is, in fact, related tothe cost of monitoring the workforce in a predictable matter.