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The purpose of this paper is to analyse the role of performance-related pay (PRP) on productivity and wages of Italian firms.

A unique data set for the Italian economy, obtained from the ISFOL Employer and Employee Surveys (2005, 2007, 2010), is used to estimate the relationship between PRP, labour productivity and wages, also controlling for an ample set of covariates. The authors performed standard quantile regressions (QRs) to investigate heterogeneity in associations of PRP with labour productivity and wages. In a second stage, the endogeneity of PRP was taken into account by using instrumental variable QR techniques.

The econometric estimates suggests that PRP are incentive schemes that substantially lead to efficiency enhancements and wage gains. These findings are confirmed for firms under union governance and suggest that well-designed policies, that circumvent the limited implementation of PRP practices, would guarantee productivity improvement and wage premiums for employees.

The main limitation of the findings concerns PRP data, that do not offer statistical information on different types of schemes, at group or individual level.

This paper is the first to investigate, on a national scale for the Italian economy, the role of PRP on both productivity and wages, in order to shed light on the efficiency and distributive implications, whereas most of the studies of related literature are restricted to one of those aspects.

The purpose of this paper is to examine the extent to which performance-related pay (PRP) has been negotiated through decentralised bargaining in Italy.

The paper provides estimates aimed at identifying the main factors that have favoured agreements on PRP, on the basis of a nationally representative sample of Italian manufacturing and service companies.

The paper shows that collective bargaining on PRP in Italy is positively associated with the presence of unions. The estimates also suggest that in unionised firms, workers have more access to returns from training in the form of PRP schemes. Finally, the paper finds that firm performance is positively associated with the adoption of PRP.

Further research based on additional data should enable the authors to identify causal effects.

Partial fiscal exemptions for the wage component linked to enterprise results might increase the number of firms adopting PRP. In addition, the presence of unions may discourage the diffusion of “cosmetic” schemes that are adopted merely to secure benefits for the firm. Unions may also increase the returns of training and diffusion of PRP.

This paper utilises a unique database containing recent information from a nationwide sample of Italian firms. It includes a whole set of information, including unionisation at the firm level, which allows the authors to address a critical issue, i.e., the strategic role of unions in adopting (or impeding) the adoption of PRP.