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Sunshine Farms (SF) was one of the largest industrial fruit farms in the United Kingdom. At the
beginning of each season SF hired a large number of seasonal workers from Eastern and Central
Europe. These workers got temporary work visa that allowed them to work on the farm for six
months. Workers lived together in temporary housing based on the farm. Over the course of a
season there was very little turnover since leaving the farm meant having to leave to country.
Traditionally SF had used an absolute incentive scheme that rewarded workers for their
individual performance. Recently, however, SF became interested in using a relative incentive
scheme in which each worker would be rewarded for his or her performance relative to that of his
or her co-workers. SF recorded each worker’s daily productivity and used this information to
determine their pay. Information about a worker’s productivity and pay was known to that work
and of course management but it was not shared with other workers.
To evaluate the effect of potential switch in compensation on productivity, SF ran an experiment
in the 2002 season. The experiment involved workers who worked on two types of fruit, Fruit 1
and Fruit 2. At the beginning of each day, a group of workers was assigned to a particular field.
Fruit plants were lined up in rows and each worker was assigned one or more rows to pick. The
productivity of each worker depended only on his or her own effort and not on that of his or her
co-workers. Fruit 1 grew close to the ground. Workers on the same field could therefore talk to
each other and interact in other ways. Fruit 2, in contrast, grew in dense shrubs that were six to
seven feet high on average. Workers on the same field had much less interaction since they
couldn’t see each other. The allocation of workers to fields was essentially random (basically
every morning management picked a random group of workers to work on each field). There
were on average roughly 40 workers on each field.
The experiment took the following form. For the first half of the season management paid
workers according to the absolute scheme. After the first half of the seasons was over, it
switched to the relative scheme and kept that scheme in place for the rest of the seasons. Each
half of the season was 54 days long. The switch was implemented on the same day it was
announced. At the end of the season management compared workers’ productivities under the
two schemes to evaluate the likely effect on productivity of a permanent switch to a relative
scheme.
To be more specific, consider compensation for a worker who, on a given day, was chosen to pick
Fruit 1 (compensation for Fruit 2 was analogous). In the first half of the season worker i’s daily
pay was given by
,
where w was the fixed wage and was the piece rate that determined how much money each
worker was paid for picking one extra kilo of fruit.
w i +a *kilos picked by
a
7
In the second half of the season, instead, worker i’s daily pay was given by
where was the new fixed wage and “avg” was the average kilos picked by all workers who
worked on the same field/day as worker i. The new fixed wage was set in such a way that the
average worker could expect roughly the same daily pay under the two schemes. Notice that the
piece rate was the same under the two schemes.
Why would management want to switch to a relative incentive scheme? According to an article
on SF’s change in compensation:
“Finally, interviews with management revealed that the relative incentive scheme was adopted
because it allowed them to difference out common productivity shocks, such as those derived
from weather and field conditions, that are a key determinant of productivity in this setting.”
A. Why would SF management want to make its workers’ pay less risky by differencing out
common productivity shocks? Offer an explanation based on our discussion in class.
Management had detailed information about the daily productivity of each worker and they used
this data to evaluate the effect of the switch in compensation on productivity. The enclosed
spreadsheet gives you the average daily productivity for workers picking Fruit 1 for each day of
the season.
B. What is the effect of the switch in compensation on average worker productivity? To answer
this question, work out average daily productivity in each half of the season and work out the
percentage change.
C. In the Safelite case we saw that half of the increase in productivity was due to “selection”
and half was due to “motivation.” In the case of SF, how much of the change in productivity
is due to “motivation” and how much is due to “selection”? Explain your answer.
Management was very surprised by how much the change in compensation affected productivity
of workers picking Fruit 1. They were especially surprised since they had deliberately kept the
piece rate α constant. Naturally, this made them think again about permanently moving to a
relative scheme. They were not yet, however, ready to give up. Instead, they first wanted to
understand why the move to the relative scheme had had such a large effect on productivity. For
this purpose, they collected the following additional facts:
• Having more friends in the same field reduced productivity significantly under the
relative scheme.

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