Pouliakas, Konstantinos and Theodossiou, Ioannis (2009): Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees. Published in: Scottish Journal of Political Economy , Vol. 56, No. 5 (2009): pp. 662-684.
This is the latest version of this item.
Download (249kB) | Preview
The increasing use of incentive pay schemes in recent years has raised concerns about their potential detrimental effect on intrinsic job satisfaction (JS), job security and employee morale. This study explores the impact of pay incentives on the overall job satisfaction of workers in the UK and their satisfaction with various facets of jobs. Using data from eight waves (1998-2005) of the British Household Panel Survey (BHPS) and a uniquely-designed well-being dataset (EPICURUS), a significant positive impact on job satisfaction is only found for those receiving fixed-period bonuses. These conclusions are robust to unobserved heterogeneity, and are shown to depend on a number of job-quality characteristics that have not been controlled for in previous studies.
|Item Type:||MPRA Paper|
|Institution:||University of Aberdeen|
|Original Title:||Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees|
|Keywords:||performance-related-pay; job satisfaction; job security; intrinsic satisfaction; sorting;|
|Subjects:||J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages ; Payment Methods
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J28 - Safety ; Job Satisfaction ; Related Public Policy
|Depositing User:||Konstantinos Pouliakas|
|Date Deposited:||14. Dec 2009 12:02|
|Last Modified:||20. Feb 2013 15:47|
Artz, B, (2008), ‘Firm Size, Performance Pay and Job Satisfaction’, Labour, Vol. 2, Issue 2, pp. 315-343.
Baker, G.P. (1992), ‘Incentive Contracts and Performance Measurement’, Journal of Political Economy, vol. 100, pp. 598-614.
Baker, G., Jensen, M., and Murphy, K.J. (1988), ‘Compensation and Incentives: Practise vs. Theory’, Journal of Finance, vol. 43, pp. 593-616.
Belfield, R. and Marsden, D. (2003), ‘Performance pay, monitoring environments and establishment performance’, International Journal of Manpower, Vol. 24, No. 4, pp. 452-471.
Benabou, R. and Tirole, J. (2003), ‘Intrinsic and Extrinsic Motivation’, Review of Economic Studies, Vol. 70, pp. 489-520.
Booth, A. and Frank. J. (1999), ‘Earnings, Productivity, and Performance-Related Pay’, Journal of Labor Economics, Vol. 17, No. 3, pp. 447-463.
Blanchflower, D.G. and Oswald, A.J. (2004), ‘Well-Being over time in Britain and the USA’, Journal of Public Economics, Vol. 88, pp. 1359-1386
Brown, C. (1992), ‘Wage Levels and Methods of Pay’, The Rand Journal of Economics, vol. 23, no. 3, pp. 366-375.
Brown, M. (2001), Merit pay preferences among public sector workers’, Human Resource Management Journal, Vol. 11, No. 4, pp. 38-54.
Clark, A.E. (1997), ‘Job Satisfaction and Gender: Why are women so happy at work?’, Labour Economics, vol. 4, pp. 341-372.
Clark, A.E. (1999), ‘Are wages habit-forming? Evidence from micro data’, Journal of Economic Behaviour and Organization, vol. 39, pp. 179-200.
Clark, A. E. and Oswald, A.J. (1996), ‘Satisfaction and Comparison Income’, Journal of Public Economics, vol. 61, pp. 359-381.
Clark, A.E. and Oswald. A.J. (2002), ‘Wellbeing in panels’, University of Warwick working paper.
Cornelissen, T, Heywood, J. and Jirjahn, U (2008), ‘Performance Pay, Risk Attitudes and Job Satisfaction’ SOEPpaper No. 136.
Deci, E. (1971), ‘The Effects of Externally Mediated Rewards on Intrinsic Motivation’, Journal of Personality and Social Psychology, vol. 18, no. 1, pp. 105-115.
Deci, E. and Ryan. R.M. (1985), Intrinsic Motivation and Self-Determination in Human Behaviour, Plenum Press: NY.
Drago, R. (1996), ‘Workplace transformation and the disposable workplace: employee involvement in Australia’, Industrial Relations, Vol. 35, pp. 526-543.
Drago, R., Estrin, S., and Wooden, M. (1992), ‘Pay for Performance Incentives and Work Attitudes’, Australian Journal of Management, vol. 17, no. 2, pp. 217-232.
Drago, R. and Heywood, J.S. (1995), ‘The Choice of Payment Schemes: Australian Establishment Data’, Industrial Relations, Vol. 34, pp. 507-31.
EPICURUS (2007), Societal and Economic Effects on Quality of Life and Well-being: Preference Identification and Priority Setting in Response to Changes in Labour Market Status, EU Research on Social Sciences and Humanities Report No. EUR 23133, European Communities: Belgium.
Eriksson, T. and Villeval, M. (2004), ‘Other-Regarding Preferences and Performance Pay – An Experiment on Incentives and Sorting’, IZA Discussion Paper, No. 1191.
Fehr, E. and Falk, A. (2002), ‘Psychological Foundations of Incentives’, European Economic Review, Vol. 46, pp. 687-724.
Fernie, S. and Metcalfe, D. (1999), ‘(Not) hanging on the telephone: payment systems in the new sweatshop’, Advances in Industrial Relations, Vol. 9, pp. 23-68.
Ferrer-i-Carbonell, A. (2005), ‘Income and well-being: An empirical analysis of the income comparison effect’, Journal of Public Economics, Vol. 89, no (5-6), pp. 997-1019.
Ferrer-i-Carbonell, A. and Fritjers, P. (2004), ‘How important is methodology for the estimates of the determinants of happiness?’, The Economic Journal, Vol. 114, pp. 641-659.
Freeman, R.B. (1978), ‘Job Satisfaction as an Economic Variable’, The American Economic Review, vol. 68, no. 2, pp. 135-141.
Frey, B. S. (1997), Not just for the Money: An Economic Theory of Personal Motivation, Edward Elgar Publishing Company: Cheltenham UK.
Frey, B. S. and Jegen, R. (2001), ‘Motivation Crowding Theory: A Survey of Empirical Evidence’, Journal of Economic Surveys, vol. 15, No. 5, pp. 589-611.
Green, C. and Heywood, G. (2008), ‘Does Performance Pay Increase Job Satisfaction’, Economica, Vol. 75, pp. 710-728.
Grund, C. and Sliwka, D. (2005),’Reference Dependent Preferences and the Impact of Wage Increases on Job Satisfaction: Theory and Evidence’, IZA Discussion Paper, No. 1879
Heywood, J.S. and Wei, X. (2006), ‘Performance Pay and Job Satisfaction’, Journal of Industrial Relations, vol. 48, 523 – 40.
Holmstrom, B. (1979), ‘Moral hazard and observability’, Bell Journal of Economics, vol. 9, pp. 74-91.
Holmström,B. and Milgrom, P. (1987), “Aggregation and linearity in the provision of intertemporal incentives”, Econometrica, Vol. 55, pp. 303-328.
Holmstrom, B. and Milgrom, P. (1991), ‘Multitask principal-agent analyses: incentive contracts, asset ownership, and job design’, Journal of Law, Economics, and Organization, vol. 7, pp. 24-52.
Kohn, A. (1993), Punished By Rewards: The Trouble with Gold Stars, Incentive Plans, A's, Praise, and Other Bribes, Mariner Books.
Kreps, D.M. (1997), ‘Intrinsic Motivation and Extrinsic Incentives’, The American Economic Review, vol. 87, no. 2, pp. 359-364.
Layard, R. (2005), Happiness: lessons from a new science, Penguin Books: London.
Lazear, E.P. (1986), ‘Salaries and Piece Rates’, Journal of Business, vol. 59, pp. 405-431.
Lazear, E.P. (2000), ‘Performance Pay and Productivity’, The American Economic Review, vol. 90, no. 5, pp. 1346-1361.
Lepper, M., Greene, D., and Nisbett, R. (1973), ‘Undermining Children’s Intrinsic Interest with Extrinsic Reward’, Journal Personality and Social Psychology, vol. 28, no. 1, pp. 129-137.
Maddala, G.S. (1983). Limited-dependent and qualitative variables in econometrics, Cambridge University Press, Cambridge.
Marsden, D. and French, S. (1998), ‘What a performance: performance related pay in the public services’, Centre for Economic Performance Special Report, July, London School of Economics: London.
McCausland, W.D., Pouliakas, K. and Theodossiou, I. (2005), “Some are Punished and some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction”, International Journal of Manpower, special issue on "Human Resource Management and Performance Incentives", Vol. 26, Issue 7/8, pp. 636-659.
McLeod, W.B. and Parent, D. (1999), ‘Job characteristics and the form of compensation’: in S.Polacheck (ed.), Research in Labor Economics, vol. 18, pp. 177-242, Samford, Conn: JAI Press.
McKersie, R., Carroll, M. and Quarterman, W. (1964), ‘Some Indicators of Incentive Plan Prevalence’, Monthly Labor Review, (March), pp. 271-276.
Milgrom, P. and Roberts, J. (1992), Economics, Organizations and Management: Prentice-Hall: NY.
Mirlees, J. (1976), ‘The optimal structure of incentives and authority within an organization’, Bell Journal of Economics, vol. 7, pp. 105-131.
Murphy, K.J. (1999), ‘Executive Compensation’ in: O.Ashenfelter and D.Card, eds., Handbook of Labor Economics, vol. 3, , Amsterdam: North-Holland.
Panos, G. A and Theodossiou I. (2009), ‘Earnings Aspirations and Job Satisfaction: The Affective and Cognitive Impact of Earnings Comparisons’, University of Aberdeen Mimeo.
Parent, D. (1999), ‘Methods of Pay and Earnings: A Longitudinal Analysis’, Indiustrial and Labor Relations Review, Vol. 53, pp. 71-86.
Pouliakas, K. (2007), Socio-economic effects on employee well-being: Preference identification in response to non-standard labour market conditions, submitted PhD thesis, University of Aberdeen.
Pouliakas, K. and Theodossiou, I. (2009), ‘Rewarding Carrots, Crippling Sticks: Uncovering the Preferred Incentives of European Employees’, Research paper of the EPICURUS project, EU Research on Social Sciences and Humanities Report, No. EUR 23133, European Communities: Belgium.
Prendergast, C. (1999), ‘The Provision of Incentives in Firms’, Journal of Economic Literature, vol. 37, no. 1, pp. 7-63.
Seiler, E. (1984), ‘Piece Rate vs. Time-Rate: The Effect of Incentives on Earnings’, The Review of Economics and Statistics, vol. 66, no. 3, pp. 363-376.
Skalli, A., Theodossiou, I. and Vasileiou, E. (2008), ‘Jobs as Lancaster Goods: Facets of Job Satisfaction and Overall Satisfaction’, Journal of Socio-economics, Vol. 37, No. 5, pp. 1906-1920.
Valetta, R. G. (1999), ‘Declining Job Security’, Journal of Labour Economics, Vol. 17, No. 4, pp. S170-S197.
Van Praag, B.M.S., Frijters, P., and Ferrer-i-Carbonell, A. (2003), ‘The anatomy of subjective well-being’, Journal of Economic Behavior and Organization, Vol. 51, no.1, pp. 29-49.
Van Praag, B.M.S., and Ferrer-i-Carbonell, A. (2004), Happiness Quantified: A Satisfaction Calculus Approach, Oxford University Press: Oxford.
Wooldridge, J. M. (2002), Econometric Analysis of Cross Section and Panel Data, MIT Press: Cambridge, Massachusetts.
Available Versions of this Item
Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees. (deposited 24. Mar 2009 12:57)
- Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees. (deposited 14. Dec 2009 12:02) [Currently Displayed]