Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction

McCausland, David and Pouliakas, Konstantinos and Theodossiou, Ioannis (2005): Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction. Published in: International Journal of Manpower , Vol. 7, No. 26 (2005): pp. 636-659.

Abstract

Using an econometric procedure that corrects for both self-selection of individuals into their preferred compensation scheme and wage endogeneity, this study investigates whether significant differences exist in the job satisfaction of individuals receiving performance-related pay (PRP) compared to those on alternative compensation plans. Using data from four waves of the British Household Panel Survey (BHPS), it is found that PRP exerts a positive effect on the mean job satisfaction of (very) high-paid workers only. A potential explanation for this pattern could be that for lower-paid employees PRP is perceived to be controlling, whereas higher-paid workers derive a utility benefit from what they regard as supportive reward schemes. Using PRP as an incentive device in the UK could therefore be counterproductive in the long run for certain low-paid occupations.

• Item Type: MPRA Paper
• Language: English
• Keywords: performance pay, job satisfaction, selectivity bias, endogeneity, crowding-out, intrinsic motivation, UK
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J28 - Safety ; Job Satisfaction ; Related Public Policy; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages ; Payment Methods

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