Dear Silburn,

The traditional neoclassical model suggests that the factors must be rewarded their marginal productivity, and that this is the way to most efficiently generate more productivity. Using the firm's productivity can only sorrogate for that model because it includes the productivity of capital which is, according to Post Keynesians, notorously flaud. For instance it assumes that Marx's assumption about the organic composotion of capital is true.

So broadly speaking, there is no empirical validation of the model. It remains only a vision under capitalism, and your recommendation for flexible market is a laudable way to move in the direction of the vision of the model, which amoung other things sees hitchless growth in the future.

An empirical work on performance related pay (PRP)and its effect on firm productivity was carried out by (Federica Origo) where he found that the introduction of

collective performance related pay significantly increased productivity by around 3-5 per cent, but such effect varied greatly by firm size, industry and union density. He also showed  that the design of the PRP scheme – in terms of number and type of parameters used – were also relevant for firm productivity.

Mousumi,

Appreciate the reference.

Have downloaded the 2012 and 2015 works by Federica Origo and Claudio Lucifora on pay and productivity.  Very informative

https://www.researchgate.net/publication/254070535_Performance_Related_Pay_and_Firm_Productivity_New_Evidence_from_a_Quasi-Natural_Experiment_in_Italy

Silburn

Article Performance Related Pay and Firm Productivity: New Evidence ...

Thanks for sharing that economic perspective Lall,

The question may have been a bit imprecise by not specifying employee productivity or firm productivity as the outcome

Agree that the factor productivity gain at the margin is ideally where the focus of the measurement and analysis should occur. 

Ironically, it would appear from subsequent readings since the posting, that while an ideal,  observations were that group-level collective schemes were reportedly more effective than individual-level performance related compensation regimes.

The other irony seems to be the demotivating effect of an explicit link between compensation and performance.  The observation being that extrinsic pay for performance schemes have a chilling effect on intrinsic work motivation, and hence would moderate the expected results

The efficient salary  theory tell us any compensation to worker  wage contribuite to increase productivity firm, I recomend review this theory.