Performance-based Wage System and Motivation to Work

Transcription

1 Performance-based Wage System and Motivation to Work Fumio Ohtake, Institute of Social and Economic Research, Osaka University Koji Karato, Faculty of Economics, Toyama University Abstract This paper presents an econometric analysis of the effects of a switch to a performance-based wage system on the motivation of employees to work. The result of the analysis shows that introducing a performance-based wage system itself has no significant impact on the motivation to work on average. However, enhanced motivation to work is observed among white-collar workers when their ways of working change in response to such a wage system. In addition, motivation to work increases among workers with high wage levels and among those given wage increases. Moreover, virtually no relation is seen between the fact that a company changes to a performance-based wage system and the fact that employees feel their company has switched to a performance-based wage system. Most workers feel that the wage system has really been changed to a performance-based one only when their own wages are increased. * The authors are grateful to seminar participants at the final meeting and International forum for ESRI Collaboration Projects 2004, University and the Kansai Labor Forum. The Institute of Industrial & Labor Politics Chubu gave permission to use its data. This research was supported in part by Cabinet Office and the Ministry of Education, Culture, Sports, Science and Technology (Grant-in-Aid for Scientific Research ((B)(2) and (C)(2) )). 32

2 1. Introduction In the late 1990s, Japanese businesses began to introduce a method for determining the working conditions of individual workers with stress placed on their personal ability and short-term performance. Has the introduction of a performance-based wage system really contributed to enhancing the motivation of employees to work? Recently, this type of wage system has been criticized (e.g., Takahashi (2004)). On the other hand, among those with high educational backgrounds or high incomes there are those who do not call into question a widening of wage gaps. It is true that a rough-and-ready change to a wage system may damage the traditional labor-management relationship, and may result in losing opportunities to develop an employee s abilities. It is also argued that a free hand should be given to workers to motivate them under a performance-based wage system. Another important problem lies in how to put a merit-rating system in place. The purpose of this research is to measure and analyze the effects of introducing a performance-based wage system on the workplace and on the worker. An analysis is made from the viewpoint of whether changing a wage system improves the motivation of workers to work, and how a merit-rating system should be created to make the wage system effectively change the way work is done. More specifically, we use the results of a questionnaire survey covering companies in the Chubu Region (1,823 workers at 83 companies) to examine what impact adoption of a performance-based wage system in the previous three years had on changing the motivation of employees to work by controlling changes to the contents of jobs and other factors. The results of the analysis show that introducing a performance-based wage system itself had no significant effect on the workers motivation to work on average. But, the motivation of white-collar workers was enhanced when the ways they worked changed under a performance-based system. While the motivation increased of white-collar workers, who believed that their wages were higher than those of employees who joined the company in the same year, when they were given information by their superiors, that of employees with a low wage level was improved when they were given information by a labor union. Also, the motivation of workers having a high 33

3 wage level and a pay increase was enhanced. Moreover, almost no relation was observed between the fact "that the company changed the wage system to a performance-based one" and the fact "that workers feel that the wage system became performance-based." Instead, most employees were aware that a performance-based wage system was adopted only when their own wages were increased. Preceding studies that analyzed the impact of performance-based wage systems on the motivation of employees to work include those of Genda, Kanbayashi, and Shinozaki (1999, 2001). The present study adds some enhancements to their approaches. Genda, Kanbayashi, and Shinozaki (1999, 2001) used data from the "Questionnaire Study on Working Life and Jobs," which was conducted by the Japan Productivity Center for Socio-Economic Development in September 1998 for employees of 27 major companies in the main industrial sectors. The questionnaire posed the question to these employees: "Was the wage system changed in the previous three years to increase the weight of achievements and results?" Only those who answered "Yes" to this question were asked how their motivation to work changed as a result of introducing a performance-based wage system. Genda, Kanbayashi, and Shinozaki (1999) used the samples who replied that a performance-based wage system was adopted to econometrically analyze what effects changes to working conditions, such as "working hours" and "clear definition of job sharing," had on changes in the motivation to work. As a result, they showed that when ways of working; for example, "extension of discretion," "clearer definition of job sharing," "greater importance attached to performance," and "more opportunities for developing abilities" were changed, the motivation to work was improved under a performance-based wage system. 1 Their study was a pioneering contribution as an empirical study on the impact of introducing a 1 Predergast (2002) also pointed out that when a wage system is changed to a performance-based one, power is delegated at the same time. Using the results of various empirical studies, Predergast proved that it was in a workplace where there was a lot of uncertainty about performance that a performance-based wage system was adopted. The fact that a performance-based wage system is adopted in a work site where there is a lot uncertainty seems to go against the notion of a tradeoff between risks and incentives. Addressing this problem, Predergast showed that when the degree of uncertainty is high, a superior often does not know the best ways of working; in such a case, performance-based wages, with a delegation of power, become more desirable than wages based on job input. 34

4 performance-based wage system on the motivation to work. However, their analysis involves some problems. First, they did not examine how motivation to work changed in companies that did not introduce a performance-based wage system; thus it is not clear whether changing working conditions was needed to improve the motivation to work only in companies that adopted a performance-based wage system. Although they took account of sample selection biases in their analysis, there is insufficient information to analyze differences in factors affecting the motivation to work. Second, they posed the question about whether a performance-based wage system had been introduced or not to the workers themselves. But, in many cases, changes to the merit-rating method of the wage system are not fully notified to workers. Third, they used only 27 sample companies, and dispersions may have not been sufficient to reflect the impact of introducing a performance-based wage system and that of changes to working conditions. The present study solves these problems. First, we asked all of the sample workers, including those in the companies that did not adopt a performance-based wage system, about changes in their motivation to work over the previous three years. Second, we asked not only the workers but also the personnel affairs departments of the companies about whether or not the wage system had been changed, thus obtaining more accurate information. Third, we increased the number of respondents to 83 companies. This paper is structured as follows: Section 2 presents the theoretical models on which the estimation models are based, and Section 3 explains the data used. Section 4 discusses the factors determining motivation to work and the estimated results regarding introduction of a performance-based wage system. Section 5 examines whether there are differences in the recognition of adopting a performance-based wage system between workers and companies. Finally, the conclusion and the future prospects are presented in Section 6. 35

5 2. Models 2.1 Determining the motivation of workers to work under a performance-based wage system In this section models are built for determining motivation to work based on a standard contract theory. 2 The worker engaged in production work inputs "level of effort," e, and earns "wage (remuneration)," w. But, the company cannot observe this e directly. Wage, w, the remuneration of the worker is determined by "performance," y, which is related to e. It is assumed that the wage is paid according to a linear function: w = α + βy. We call this a wage system where the weight of "performance," y, which is an objective indicator, in wage determination is great (where β has a high value) "a performance-based wage system." If the "wage system conditions," SYSTEM, which show whether or not a performance-based wage system is introduced, are given, this relation can be expressed by w = α + β ( SYSTEM ) y. The effect of the worker's level of effort on the worker s performance also depends on the worker s power and nature of work. We express these job elements as "functional conditions," FUNC. Then "performance," y, becomes a function of "level of effort," "functional conditions," and "observation errors of performance" (x). And, this relation is expressed by y = f ( FUNC ) e + x. We assume the expected value of x to be 0 and its variance to be Var(x). We express effort-related costs by an effort cost function C(e), and the worker's absolute measure of risk aversion by γ. The worker's certainty equivalence under these conditions is "expected value of income" - "costs needed for effort" - "risk premium of income fluctuation borne by the worker," which is expressed by the following equation: Worker's certainty equivalence = α + β ( SYSTEM ) f ( FUNC ) e - C(e) - 1/2γβ 2 Var(x) Under the above conditions, the optimum level of effort e* satisfies the following equation: 2 For models of standard contract theory, see Milgrome and Roberts (1992). 36

6 C'(e*) = β ( SYSTEM ) f ( FUNC ) (1) Equation (1) shows that the optimum level of effort is dependent on the following three factors: i. Marginal disutility of effort: C'(e) ii. Marginal influence of performance on wage: β( SYSTEM ) iii. Marginal effect of effort on performance: f ( FUNC ) i. depends on the form of the utility function, ii. on the wage system, and iii. on the ways of working and the degree of power when performing a job. Therefore, the optimum level of effort is determined by "functional conditions ( FUNC )," which represent ways of working and other elements of jobs, and by "wage system conditions ( SYSTEM )," which express the wage system. Solving Equation (1) for e*, we get: ( FUNC SYSTEM ) e * = h, (2) Assume the utility function is stable around an optimum value, h h de* = dfunc + dsystem (3) FUNC SYSTEM Therefore, changes to the optimum level of effort are affected both by changes to "functional conditions," dfunc, and by changes to "wage system conditions," dsystem. In the sections below, we empirically analyze Equation (3) to examine if introducing a performance-based wage system affected the employees' motivation to work, and what functional conditions are needed to improve their motivation to work. 37

7 3. Preparation of data and variables 3.1 Data of "Questionnaire on the Workplace" The data we use for our analysis are the results of the "Questionnaire on the Workplace" conducted by the Institute of Industrial & Labor Politics Chubu in July This questionnaire mainly covered manufacturers in the Tokai Region, and got responses from 1,823 employees at 83 companies. It was carried out for these employees and companies separately. While the former included 33 questions for employees about, among other issues, "atmosphere of the work site," "contents of job," and "points of merit-rating" in recent years, the latter had 17 questions for the personnel affairs staff of companies, such as change to the personnel affairs system, roles of managers and supervisors in the company, and system for handling complaints How to measure the employees' motivation to work The subjective value judgment of the employees' motivation to work is dependent on the form of the utility function, and it is difficult to directly analyze their motivation to work. However, we can estimate a qualitative relation as to the direction of changes in motivation to work; i.e., to what extent motivation increases or drops when a wage system putting greater emphasis on performance is introduced. To conduct an econometric analysis of Equation (3), we specified the variables as follows: for changes in "level of effort," we used responses to the question about "changes in motivation to work in the previous three years." For "changes in functional conditions," we used changes in such concrete items related to the question about "changes in the contents of job in the previous three years" as a clear definition of power, working hours, and workload. For changes to "wage system conditions," we used the responses of the personnel affairs staff of the companies to the question: "Did you make a change to the wage system that would increase the weight of achievements and results in the previous three years?" Table 1 shows these questions and the number and the percentage of responses. The ratio of those who responded that their motivation was improved was 38.7%; that of those whose motivation did not change was 34.5%; and, that of those 3 Ohta and Ohtake (2003) also analyzed these data with emphasis placed on motivation to work and corporate growth. 38

8 who answered their motivation declined was 26.4%, indicating that those with reduced motivation occupied a high ratio. For changes in the contents of job, more employees mentioned an increase in "workload," "scope of job," "scope for discretion," "responsibility for job," "results required of job," and "ability and knowledge requirements." On the other hand, those who cited decrease in "working hours," "clear definition of job-sharing and role," and "opportunities for developing abilities" exceeded 10%. But, we should note that these changes include both those that would occur as an employee gains work experience and those in the entire company. Table 1. Changes in the Motivation to Work and the Contents of Job Changes in motivation to work: Q7: How did you change your motivation to work in the previous three years?: (%) Q4: How did you change in the contents of your job in the previous three years?: (%) Reduced Changes in the contents of job: Reduced a little Have not changed Improved a little Improved Decreased Have not changed Increased 1. Workload Scope of job Scope of discretion Working hour Clear definition of job-sharing and role Responsibility for job Results required of job Ability and Knowledge requirements Opportunities for developing ability Table 2 statistically tests if there are differences among changes in an employee's way of working between companies that introduced a performance-based wage system and those that did not. About 60% of the sample companies had introduced a performance-based wage system in the previous three years. Because the companies that adopted such a system are mostly large, the ratio of employees working in companies with a performance-based wage system is as high as about 82% (Table 3). 39

9 Table 2. a Performance-based Wage System and Changes in Ways of Working a performance-based wage system Q4: Did you make a change to the wage system that would increase the weight of achievements and results in the previous three years? : (%) Questionnaire items (contents of job) 1. Workload 2. Scope of job 3. Scope of discretion 4. Working hour 5. Clear definition of job-sharing and role 6. Responsibility for job 7. Results required of job 8. Ability and Knowledge requirements 9. Opportunities for developing ability Answer Not introduced Not introduced obs. ratio obs. ratio Difference between two ratios Decreased ** Increased ** Narrow Widen Narrow Widen *** Getting Shorter Getting longer *** Became indefinite Became clear Decreased Increased seldom no longer asked asked severely ** Decreased Increased Decreased Increased note: The null is an equality between two ratio ( *** 1% level of significance, ** 5% level of significance ). Table 2 shows the test result for a null hypothesis that there are no differences in ways of working whether or not a performance-based wage system is introduced, defining "difference in ratio = ratio of the group having such a system - ratio of the group having no such system." Figures with *** appended are those rejected at a 1% significance level and those with ** appended are those rejected at a 5% significance level. Significant differences are observed between companies with a performance-based wage system and those with no such system as to changes in "workload," "discretion left to the employee," "working hours," and "required scope of 40

10 job." In other words, compared to the samples having no change in the wage system, the samples with a change in the system have a significantly higher ratio of answers "increased (extended)" to the questions about "workload," "scope for discretion," "working hours" and "results required of job." Also, the ratio of the employees in companies that introduced a performance-based wage system who cited "workload" was significantly low. Table 3 shows descriptive statistics for the variables used for the estimation in the next section. Here, we summarize changes in motivation to work from the five alternative answers used in the questionnaire into three, defining them as follows: 1: "Reduced","Reduced a little" deffort = 2 : "Have not changed" (4) 3 : "Improved a little","improved" Change in motivation to work is 2.12 on average, and more employees said their motivation had increased. The comparison between companies that had introduced a performance-based wage system and those that had not shows that the average value of variables showing changes in motivation is 2.13 for the former and 2.07 for the latter, the former having a higher motivation than the latter on average. 4 The questionnaire also asked the employees whether ratings of their achievements and results had become more important in the previous three years. In companies whose personnel affairs department answered that they had adopted a performance-based wage system, the average of the employees' responses to the above question was 2.74, while the average figure was 2.69 for companies that did not introduce such a system. The samples we used have the following characteristics: a very low ratio of female employees (5%); a very high ratio of employees working for manufacturers (82%); and main types of jobs being manufacturing jobs (39.1%) and engineers (29.8%). This reflects the fact that the samples were mostly taken from manufacturing industries, 4 In the samples used by Genda, Kanbayashi, and Shinozaki (2001), the companies where motivation to work dropped following introduction of a performance-based wage system numbered more than those with a higher motivation to work. 41

11 mainly from the automobile assembly sector. Table 3. Definition and Summary Statistics for Variables Variable and definition Obs. Mean Std.Dev. Min Max Dependent Variable Changes in motivation to work: deffort Changes in the points of the merit-rating: "achievements and results" Explanatory Variable Changes in the contents of job: 1. Workload Scope of job Scope of discretion dfunc 4. Working hour Clear definition of job-sharing and role Responsibility for job Results required of job Ability and Knowledge requirements Opportunities for developing ability Performance-based Wage system: dsystem = 1, Not introduced = INDIV DW INFO Wage level (Absolute) Increase in an annual income for last year Age Sex : female = 1, male = School education : college/graduate school = 1, otherwise = Union officer : experienced = 1, otherwise = Engineering job = 1, otherwise = Operating job = 1, otherwise = Manufacturing job = 1, otherwise = SE/Programmer = 1, otherwise = Maintenance/Service job = 1, otherwise = Manufacturing industry = 1, otherwise = Wage level (Relative): Low rank = 1, otherwise = Lower in middle rank = 1, otherwise = Middle rank = 1, otherwise = Higher in middle rank = 1, otherwise = High rank = 1, otherwise = Sources of information of income: Labor union=1, otherwise = coworkers(word-of-mouth) = 1, otherwise = superior officials = 1, otherwise = personnel affairs department = 1, otherwise =

12 4. Estimation using ordered probit models 4.1 Estimation models Equation (3) explains the effects of changes in the functional conditions ( dfunc ) and those in the wage system conditions ( dsystem ) on the above-mentioned changes in motivation to work ( deffort ). Changes in motivation to work will differ according to an employee's personal attributes INDIV, too; thus, to control these attributes, we use data about wage level, age, sex, type of job, and so on, which are shown in Table 3, as additional independent variables. Incidentally, it is highly likely that the effect of a wage-system change indirectly causes an employee's motivation to work to change. For example, if employees receive information from a superior or a labor union on their wage level compared to those of colleagues who joined the company in the same year (relative wage level), and are sure of their wage level, they will estimate how their wage will change as a result of the wage-system change. Workers having a high wage level may expect their merit rating score to rise following the wage-system change. Those on a low or middle wage level may fear that introducing a performance-based wage system will result in their wages decreasing. Considering this, we take account in our analysis of the possibility that workers in different wage level groups will react differently to a wage-system change. To know the wage level, we need a specific source of information. The questionnaire investigated from which source an employee got income-related information, "labor union," "by word of mouth," "directly from superior," or "personnel affairs department." If there are differences in the quality of information, such differences should be controlled; thus, we use the dummy variable for each information source as an additional independent variable. Some of the sample workers said they "have no particular information source," and these workers were used as the basis of the estimation. Considering these facts, the optimum level of effort is expressed by e* = h ( FUNC, SYSTEM, DW, INDIV, INFO ). Here, DW is a dummy variable representing the relative wage level that individual workers would expect in comparison with the wages of, for example, colleagues who joined the company in the same year. We can 43

13 use the introduction or not of a performance-based wage system as a dummy variable to examine how motivation to work changed, but in this paper we adopt the method of conducting a separate estimation for the case in which such a system was introduced and the case in which such a system was not introduced, and then measuring and comparing the probability of changes in the motivation to work for the two cases. Based on the foregoing, our estimation model is: deffort i = β 0 + β dcond + γ DW + δ INDIV + η INFO + ε (5) i i i i We estimate this equation using an ordered probit model. To compare the effects of introducing a performance-based wage system, we make an estimation using all of the samples, and also make a separate estimation for the cases of introducing and not introducing the system. Further, considering that the impact of introducing a performance-based wage system will differ according to a worker's wage level, we make estimations for the low/middle and high wage levels, too. The estimation equation is: deffort i = β 0 + β dcond + δ INDIV + η INFO + ε (6) i i i We also estimate this equation using the ordered probit model. Here we define the workers who cited their wage level as "high" or "higher in middle" to be the "high wage level" group, and those who cited their wage level as low, "lower in middle," or "middle," to be the "middle/low level" group. As in the case of Equation (5), we use all of the samples to make estimates for the low/middle and high wage groups and for the introduction or not of a performance-based wage system separately. We discuss the estimated results of Equation (5) in 4.2 below and those of Equation (6) in Estimation of all samples and estimation according to the introduction or not of a performance-based wage system The estimated results of Equation (5) are shown in Tables 4a, 4b, and 4c. The estimation was made separately for white- and blue-collar workers. Table 4a shows the 44

14 results for the samples when no distinction was made in terms of introducing the system. For both white- and blue-collar workers, motivation to work was enhanced among employees in companies where "job sharing and role," "responsibility for job," and "opportunities for developing abilities" were reinforced, and the absolute wage level and the change in annual income also had significant effects on motivation. Motivation was enhanced among white-collar workers whose information source was "labor union" or "direct superior" but these information sources had no impact on the motivation of blue-collar workers. The dummy variable representing the introduction or not of a performance-based wage system had no significant effect statistically. That is, introducing such a system has itself no effect of improving the motivation of workers. Table 4b shows the estimated results for sample employees in companies where a performance-based wage system was introduced, while Table 4c shows the results for those in the companies having no such system. In the former companies, "increased opportunities for developing abilities" had a positive significant effect on enhancing motivation. In contrast, in the latter companies, "increased opportunities for developing abilities" showed no effect on enhancing motivation. It is natural that unless performance and wage have a close linkage, an environment that encourages workers to improve their abilities does not result in a higher motivation to work. In the samples that introduced a performance-based wage system, the motivation of white-collar workers with a "middle" or "upper middle" wage level was improved significantly, while the motivation of blue-collar workers showed enhancement only in the group with a "high" wage level. This suggests that adopting a performance-based wage system does not lead to higher motivation among workers with "low" and "lower-of-middle" wage levels. In the samples with no performance-based wage system, a clear definition of "job sharing and role" is an important functional condition, and a comparison between Table 4c and Tables 4a and 4b tells us that this factor is one that should be improved in a merit rating whether or not such a system is put in place. Another noticeable feature observed among samples having no such system is that increasing "working hours" had a significant impact in reducing motivation among white-collar workers. 45

15 Table 4a. Estimated Results for Improving Probability in Motivation to Work Variable Total White-collar Blue-collar Dependent Variable: deffort Coefficient Std. Error Coefficient Std. Error Coefficient Std. Error Changes in the contents of job: 1. Workload Scope of job Scope of discretion ** *** Working hour Clear definition of job-sharing and role *** *** *** Responsibility for job *** * ** Results required of job Ability and Knowledge requirements *** *** Opportunities for developing ability *** *** *** Wage level (Relative): Low rank Lower in middle rank * Middle rank ** * Higher in middle rank * ** High rank Wage level (Absolute) *** *** Increase in an annual income for last year *** * *** Age Sex Engineering job ** ** Operating job Manufacturing job SE/Programmer job *** ** Maintenance/Service job Manufacturing industry Sources of information of income: Labor union ** Coworkers(word-of-mouth) Superior officials *** ** Personnel affairs department dsystem _cut _cut Number of obs LR test statistics Pseudo R Log likelihood note: ***, ** and * indicate the significance levels of 1%, 5% and 10%, respectively. 46

16 Table 4b. Estimated Results for Probability of Improving Motivation in Motivation to Work ( worker group) Variable White-collar Blue-collar Dependent Variable: deffort Coefficient Std. Error Coefficient Std. Error Changes in the contents of job: 1. Workload Scope of job Scope of discretion 0.280*** Working hour Clear definition of job-sharing and role 0.441*** *** Responsibility for job 0.216* ** Results required of job Ability and Knowledge requirements 0.425*** Opportunities for developing ability 0.312*** *** Wage level (Relative): Low rank Lower in middle rank Middle rank 0.273* Higher in middle rank 0.320** High rank * Wage level (Absolute) 0.108*** Increase in an annual income for last year 0.187* *** Age Sex Engineering job ** Operating job Manufacturing job SE/Programmer job ** Maintenance/Service job Manufacturing industry ** Sources of information of income: Labor union 0.217* Coworkers(word-of-mouth) Superior officials 0.508*** Personnel affairs department _cut _cut Number of obs LR test statistics Pseudo R Log likelihood note: ***, ** and * indicate the significance levels of 1%, 5% and 10%, respectively. 47

17 Table 4c. Estimated Results for Probability of Improving Motivation in Motivation to Work ( Not introduced worker group) Variable White-collar Blue-collar Dependent Variable: deffort Coefficient Std.. Error Coefficient Std.. Error Changes in the contents of job: 1. Workload Scope of job Scope of discretion Working hour ** Clear definition of job-sharing and role *** *** 6. Responsibility for job Results required of job Ability and Knowledge requirements Opportunities for developing ability Wage level (Relative): Low rank ** Lower in middle rank * * Middle rank Higher in middle rank High rank Wage level (Absolute) Increase in an annual income for last year Age Sex Engineering job Operating job Manufacturing job SE/Programmer job Maintenance/Service job Manufacturing industry Sources of information of income: Labor union Coworkers(word-of-mouth) Superior officials Personnel affairs department * _cut _cut Number of obs LR test statistics Pseudo R Log likelihood note: ***, ** and * indicate the significance levels of 1%, 5% and 10%, respectively. 48

18 The observation of the impact of relative wage levels indicates that, in contrast to cases in which a performance-based wage system was introduced, motivation dropped significantly in the worker group with "low" and "lower middle" wage levels. As for the group with a "low" wage level, this may have been due to their motivation originally being low. From these results we can assume that the impact of a performance-based wage system on motivation to work differs according to the wage level of the worker group and that introducing such a system cannot improve the motivation of all the worker groups in the company. Table 5 summarizes the results of a simulation of the probability of changes in motivation, which was performed with the estimation model using the above results. The worker groups covered by the simulation are shown on the first row. At the top of the table is the worker groups used for the estimation model of this simulation. Table 5. Simulation of the Probability of Improving Motivation to Work: Estimated Model vs. Prediction ( White collar and Blue collar ) Target Group Total White-collar Blue-collar Performance-based Wage System Estimated Models Probability of Improving Probability of Reducing Motivation Motivation Not Not Not Not Not White-collar with high rank wage Not White-collar with middle-low rank wage Not note: Table shadings indicate that probabilities of improving (reducing) the motivation to work is higher (lower) one among the estimated results of and Not group. For example, in the case of white-collar workers, the average of the estimated values of the probability that the motivation of the workers in the company that actually introduces a performance-based wage system would have been improved if such a 49

19 system had not been adopted, with working conditions and other factors changed, is 38%. On the other hand, the average of the estimated values of the probability of enhancing the motivation of the worker group in the company that actually introduced such a system, which was estimated on the basis of the results of an estimation made for samples in the company that actually introduced such a system, was 41%. If we assume that a performance-based wage system had been introduced for workers in companies that did not adopt such a system, with working conditions left intact, the probability of increasing their motivation was 35%. However, where estimation was made for the samples in the companies that did not introduce such a system, the probability was 37%, which is higher than the above case. For white-collar workers, similar results were obtained for the probability of reducing motivation, too. In other words, companies that introduced a performance-based wage system cannot enhance the motivation of employees unless they change ways of working at the same time, whereby wage system and ways of working are changed simultaneously. If a performance-based wage system is adopted with ways of working left intact, the motivation of employees to work is reduced instead of being improved. However, for blue-collar workers, a performance-based wage system and ways of working do not have a complementary relation. In this case, adopting such a system causes the ratio of enhanced motivation to rise, and at the same time increases the ratio of workers whose motivation has dropped. That is, a performance-based wage system promotes a bipolarization of motivation to work among blue-collar workers. 4.3 Estimation of white-collar workers according to wage level The estimated results of Equation (5) discussed in the previous subsection show that the impact of a wage-system change differs depending on a worker's relative wage level. This subsection estimates Equation (6) by dividing workers into the low (middle and low) and high wage levels. The estimated results are shown in Tables 6a and 6b, however, they only refer to white-collar workers. 5 5 The blue-collar workers had so few dispersions that no separate estimation of low and high wage levels was possible. 50

20 Table 6a. Estimated Results for the Probability of Improving Motivation to Work ( / White-collar worker group ) Variable High Wage Group Low/Middle Wage Group Dependent Variable: deffort Coefficient Std.. Error Coefficient Std.. Error Changes in the contents of job: 1. Workload Scope of job Scope of discretion 0.474*** Working hour Clear definition of job-sharing and role 0.501*** *** Responsibility for job Results required of job *** Ability and Knowledge requirements *** Opportunities for developing ability 0.359*** *** Wage level (Absolute) 0.183*** ** Increase in an annual income for last year ** ** Age Sex Engineering job ** Operating job Manufacturing job SE/Programmer job Maintenance/Service job Manufacturing industry 0.667** Sources of information of income: * Labor union Coworkers(word-of-mouth) 0.519* Superior officials _cut _cut Number of obs LR test statistics Pseudo R Log likelihood note: ***, ** and * indicate the significance levels of 1%, 5% and 10%, respectively. Table 6a shows estimated results for sample workers in companies that introduced a performance-based wage system. "Job sharing and role" and "opportunities for developing abilities" are the functional conditions having significant impacts on enhancing the motivation to work of both low- and high-wage worker groups. Here again, in the case of the low-wage group, the requirement for "job performance" significantly reduces motivation, and "rise in annual income in the previous one year" 51

21 and "increase in ability and knowledge required" significantly enhance it. In the high-wage group, increased discretion in the way of working leads to higher motivation. The motivation to work of employees is improved among the high-wage group having a "direct superior," and among the low-wage group having a "labor union," as the information source about the relative wages. This clarified the situation for each wage-level group. Table 6b. Estimated Results for the Probability of Improving Motivation to Work ( Not introduced White-collar worker group ) Variable Wage high rank Wage middle/ low rank Dependent Variable: deffort Coefficient Std.. Error Coefficient Std.. Error Changes in the contents of job: 1. Workload ** Scope of job Scope of discretion Working hour Clear definition of job-sharing and role ** 6. Responsibility for job Results required of job Ability and Knowledge requirements Opportunities for developing ability Wage level (Absolute) Increase in an annual income for last year Age Sex Engineering job Operating job Manufacturing job SE/Programmer job Maintenance/Service job.... Manufacturing industry Sources of information of income: Labor union ** Coworkers(word-of-mouth) Superior officials * Personnel affairs department *** _cut _cut Number of obs LR test statistics Pseudo R Log likelihood note: ***, ** and * indicate the significance levels of 1%, 5% and 10%, respectively. 52

22 Table 6b shows the estimated results for sample workers in companies having no performance-based wage system. In the high-wage group, an increased workload resulted in higher motivation. In the low-wage group, a clear definition of job sharing and role contributed to enhanced motivation. In this group, we can observe a reduction of motivation among workers whose source of income information is the "personnel affairs department." In the high-wage group, motivation is improved among those having a labor union and among those having a direct superior as the information source. Figure 1 shows the relation of relative wage among employees who joined the company in the same year and their information source. Those who get information about their relative wage from direct superiors mostly belong to the high-wage group. The fact that even after a performance-based wage system was introduced, workers who can get accurate wage information from superiors are limited to those in the high-wage group may appear to be a negative effect of this wage system. Figure 1. Source of Information of Income about Relative Wage Level 53

23 Using the foregoing results, let us assess the estimated value of the probability of a change in motivation to work as we did in the previous subsection. Table 5 shows the probability of change based on the estimated value for each estimation model using the low- and high-wage worker groups. In the case of the high-wage group, the probability of enhancing the motivation of workers in companies that introduced a performance-based wage system is higher by 6% (41% vs. 35%), and the probability of reducing motivation is lower by 27% (30% vs. 57%) compared to the case in which such a wage system was not introduced. The probability of improving the motivation of workers in companies that did not adopt a performance-based wage system is 2% higher (37% vs. 35%), and the probability of their motivation dropping is 26% lower (32% vs. 58%) compared to the case in which it is assumed that such a system was adopted. In the case of the low-wage group, the probability of enhancing the motivation of workers in companies that introduced a performance-based wage system is 7% higher, and the probability of reducing their motivation is 7% lower compared to the case in which it is assumed that such a wage system was not introduced. The probability of improving the motivation of workers in companies that adopted a non-performance-based wage system is 5% higher, and the probability of their motivation dropping is lower than 3% compared to the case in which it is assumed that such a system was adopted. This indicates that if estimated results are made separately for each wage group, we can see that if it is assumed that the wage system was changed to a performance-based wage system in a company that did not actually introduce such a system, the motivation to work of white-collar workers would be improved in general. The foregoing can be summarized as follows: the functional conditions needed when a company introduces a performance-based wage system are, in the case of white-collar workers, expanding the scope of their discretion and using their abilities and knowledge more. For both white-collar and blue-collar workers, defining their job sharing and roles clearly and offering them opportunities for developing their abilities would have important effects on enhancing their motivation to work. However, the impact of a wage-system change differs greatly according to the wage levels of workers. It can be pointed out especially that among the low-wage group of white-collar workers, the labor union's function of providing wage information has an important effect on motivation. 54

24 4.4 Analysis by type of job, position, age group, and company size It is likely that the relation between introducing a performance-based wage system and motivation to work differs depending on type of job, position, age group, and company size. Thus, in this subsection, we estimate the impact of adopting such a system or not based on these factors. Although we do not present the detailed results of the estimation here, the qualitative trend is similar to the results of the estimations for white-collar and blue-collar workers. Using the estimated results for each group of workers, we simulated introduction and non-introduction of a performance-based wage system, assuming that ways of working and other attributes were not changed. The simulation was made only for groups having a sufficient number of samples. Let us examine the results by type of job as shown in Table 7. In the case of clerical jobs, in the workplace where a performance-based wage system was introduced, the estimated value of motivation for the case in which it was assumed that no such system was introduced, while no change was made to ways of working, is higher. We can consider that most workers engaged in clerical jobs had, under the wage system, no change in ways of working that would improve their motivation. Similarly, the worker group for which we can consider that a performance-based wage system has been unsuccessful in most cases is one for workers engaged in manufacturing jobs. It was estimated that motivation to work would have been enhanced more if the companies that introduced such a system had not introduced it, and if the companies that did not actually adopt such a system had adopted one. For workers group engaged in engineering jobs in companies introduced a performance-based wage system, the probability of reducing their motivation is also going up at the same time the probability of improving goes up, by introduced the system. It is clear to have caused bipolarization. Moreover, into workers group which has not been introduced, since the probability of improving their motivation falls and the probability of reducing goes up by introducing the system, It is suggested that motivation to work fall on the whole. 55

25 Table 7. Simulation of the Probability of Improving Motivation to Work: Estimated Model vs. Prediction ( Job and Position) Estimated Models Probability of Improving Motivation Probability of Reducing Motivation Target Group Performance-based Not Not Wage System Clerical job worker Not Engineering job worker Not Manufacturing job worker Not Workers at non-managerial position Not Workers at non-managerial position in white-collar Not Workers at Managerial/Chief position Not Workers at Chief position Not Table 7 also shows simulation results by position. In the case of the group of general office workers, it was estimated that motivation would have been improved if no performance-based wage system had been adopted. On the other hand, in the case of group leaders and those on higher positions, motivation was enhanced because their ways of working were changed at the same time as the wage system was introduced. By age group, in the case of workers less than 36 years old, adoption of a performance-based wage system lowers the probability of improving their motivation and simultaneously reduces the reduction of their motivation (Table 8). By contrast, in the case of those aged 36 and over, introducing such a system has a bipolarized impact: it increased in the group whose motivation was enhanced and decreased in the group whose motivation was reduced at the same time. 56