Determinants and effects of formal target agreements: an empirical investigation of German firms

We investigate organizational determinants and performance effects of formal target agreements for employees based on the IAB establishment panel, a representative panel of German establishments. The results show that establishments with a high employee turnover rate, a large proportion of temporary workers, and a highly qualified workforce are significantly more likely to implement target agreements. Also, establishments with works councils installed are more likely to do so, controlling, among others, for firm size. Concerning organizational performance, we apply a first-difference and a fixed effects approach and find that establishments that implement target agreements achieve around 5 % higher total sales compared to firms that did not introduce this practice. Hence, organizations seem to benefit from the implementation of formal target agreements for employees.