Performance-Based Pay and Other Incentive Schemes on Dairy Farms in Germany

Abstract

Performance-based pay is a common tool to improve workers' motivation and performance outcomes. It is frequently used in dairy farms with hired labor. This study investigates the effects of performance-based pay and other incentives for dairy farm workers on milk performance characteristics. In 2007, comprehensive face-to-face interviews with farmers were conducted by the author in 84 East German dairy farms. Herd performance data was compiled from records of milk performance testing of the same year. Data on different incentive schemes were analyzed regarding their relationship to 305-daymilk yield and Somatic Cell Count (SCC). Approaches to motivate farm workers through in kind, non-monetary incentives or by delegating responsibility to workers and emphasizing good communication were related to a higher milk yield than performance-based pay alone. The difference between means amounted to 1000 kg milk/305 days. We conclude that milk yield is not suitable to measure the work quality of employees, and therefore, not an appropriate criterion for incentive systems. Moreover, this criterion is potentially perceived as unfair by workers, and thus may have negative effects on worker motivation and farm outcomes.