Profit related pay in Italy

Abstract

This paper investigates which company characteristics affect the decision to introduce profit‐sharing. Unlike most studies, this paper relies on a ten‐year panel. The results presented in this paper are based on the estimation of a panel data fixed‐effect logit model. Given that they are immune from heterogeneity bias, it is believed that these results are more reliable than those obtained by estimating cross‐sectional models. These results are in line with the common findings of the literature. Companies that are more likely to introduce profit‐sharing (PS) are larger firms which invest more, due to the lower cost of debt, and tend to pay higher wages as an incentive to boost the initially lower productivity. These companies are more likely to undertake investment projects which support the interpretation of PS as a risk‐sharing device.