The relation of several incentive schemes to productivity is studied, with a particular emphasis on the effects and determinants of dismissals. Dismissals turn out to be positively, but in a nonlinear way, associated with productivity. Similarly, profit-sharing raises productivity. Wages and piece-rates are insignificant. Profit-sharing decreases the number of dismissals made by firms.

Firm-specific assets generate an ex post bargaining problem over surplus-division, and rational workers may collude to obtain a surplus-share in nonpecuniary form through restriction of effort. Conversely, profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring, since productive effort yields positive externalities to workers under contractual surplus sharing. In simultaneous Tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium-sized metalworking capitalist firms in West Germany. Proxies for human capital and organizational factors were included.