Profit-Related Pay: Prose Discovered?

Abstract

First paragraph: The case for profit sharing has attracted much recent attention, and the UK Spring Budget of I987 offered tax relief on 'profit-related pay'. Nevertheless, economic research on the issue has been predominantly theoretical (Blanchflower and Oswald (I987 b) and Estrin et al. (I987) provide surveys). Weitzman (I983; I984; I987) and Meade (I986) have been especially influential. The object of this paper is threefold. First, in Section I the Workplace Industrial Relations Surveys (WIRS) of I980 and I984 are used to calculate the extent of income-sharing schemes in Great Britain. Second, Section II attempts to test the hypothesis that profit-related pay produces greater company prosperity. As claimed in a recent Green Paper: Profit Related Pay schemes should lead to a closer identification of employees with the companies in which they work ... The most important consequence ... is likely to be enhanced competitiveness and better business performance. (Profit Related Pay, I986, Cmnd. 9835, p. 3) Section III examines tabulated evidence on the growth rate of, and quality of industrial relations within, sharing and non-sharing establishments. This was simulated by, inter alia, the following sentence taken from the Green Paper: The Government believes that the spread of Profit Related Pay would be beneficial ... for industrial relations, for productivity, for growth and for employment. (Profit Related Pay, I986, Cmnd. 9835, p. 7) Section IV summarises the paper's findings.