Unionization and the Incidence of Performance-based Compensation in Canada

Abstract

We estimate probit models to investigate the determinants of the incidence of four performance-based compensation schemes - employee share purchase plans, profit sharing, cash bonuses, and productivity gainsharing - using a sample of private sector Canadian firms. Bivariate probit models are also estimated to examine the joint probability that both a cash-based and a share-based scheme will be offered. We find that the determinants of the probability that a firm would offer a scheme differed across schemes, and for a given scheme, often differed for the broad class of non-managerial workers and for production workers alone. Our primary focus is on the effect of unionization on the incidence of the schemes. This reflects the widespread notion that unions oppose these sorts of performance-based compensation plans. Except for productivity gainsharing and one instance of cash bonuses, we find that the effect of union density was negative as expected and often significantly so. The estimated probability effect is large for employee share purchase plans and profit sharing for production workers. In addition, unionization has a fairly substantial effect on the joint probability of the firm offering both a share-based and a cash-based incentive plan. Finally, we find some support for the notion that firms adopt these policies to reward past performance.