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Who pays for performance?

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Author Info
Erling Barth
Bernt Bratsberg
Torbjørn Hægeland
Oddbjørn Raaum

Additional information is available for the following registered author(s):

Abstract

Purpose – The purpose of this paper is to improve our understanding of why some firms tie compensation to worker performance as well as the variation in type of performance pay system across firms. Design/methodology/approach – The study first presents a theoretical framework that motivates n empirical study of performance-related pay. The data are based on Norwegian establishment surveys from 1997 and 2003. The empirical analysis addresses determinants of adoption of performance pay systems. Findings – Performance-related pay is more prevalent in firms where workers of the main occupation have a high degree of autonomy in how to organise their work. Performance pay is also more widespread in large firms, but is less common in highly unionised firms and in firms where wages are determined through centralised bargaining. Results show that performance pay is on the rise in Norway, even after accounting for changes in industry structure, bargaining regime, and union density. Finally, it is found that the incidence of performance-related pay relates positively to product-market competition and foreign ownership. Originality/value – The paper provides new empirical evidence on the use of performance-related pay. The results support an interpretation of incentive pay as motivated by agency problems, and provide new evidence on the relationship between payment schemes and institutions such as unions and bargaining framework.

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Publisher Info
Article provided by Emerald Group Publishing in its journal International Journal of Manpower.

Volume (Year): 29 (2008)
Issue (Month): 1 (May)
Pages: 8-29
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eme:ijmpps:v:29:y:2008:i:1:p:8-29

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Related research
Keywords: Compensation; Norway; Payments; Performance related pay; Profits;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March. [Downloadable!] (restricted)
    Other versions:
  2. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September. [Downloadable!]
  3. Foss, Nicolai J. & Laursen, Keld, 2005. "Performance pay, delegation and multitasking under uncertainty and innovativeness: An empirical investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 246-276, October. [Downloadable!] (restricted)
    Other versions:
  4. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December. [Downloadable!] (restricted)
    Other versions:
  5. Charles Brown, 1990. "Firms' choice of method of pay," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 165-182, February.
    Other versions:
  6. Erling Barth, Bernt Bratsberg, Torbjørn Hægeland and Oddbjørn Raaum, 2008. "Performance Pay and Within-Firm Wage Inequality," Discussion Papers 535, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  7. Edward P. Lazear, 1986. "Incentive Contracts," NBER Working Papers 1917, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 917-962, August.
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  9. George Baker, 2000. "The Use of Performance Measures in Incentive Contracting," American Economic Review, American Economic Association, vol. 90(2), pages 415-420, May. [Downloadable!] (restricted)
  10. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October. [Downloadable!] (restricted)
  11. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  12. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Blackwell Publishing, vol. 64(2), pages 191-213, April. [Downloadable!] (restricted)
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  13. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, 09. [Downloadable!] (restricted)
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  14. Fumas, Vincente Salas, 1993. "Incentives and supervision in hierarchies," Journal of Economic Behavior & Organization, Elsevier, vol. 21(3), pages 315-331, August. [Downloadable!] (restricted)
  15. Lorenzo Cappellari & Stephen P. Jenkins, 2003. "MVPROBIT: Stata module to calculate multivariate probit regression using simulated maximum likelihood," Statistical Software Components S432601, Boston College Department of Economics, revised 25 Jan 2006. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kvaløy, Ola & Olsen, Trond E., 2006. "The rise of individual performance pay," Discussion Papers 2006/22, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
  2. Erling Barth, Bernt Bratsberg, Torbjørn Hægeland and Oddbjørn Raaum, 2008. "Performance Pay and Within-Firm Wage Inequality," Discussion Papers 535, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  3. Hunnes, Arngrim & Kvaløy, Ola & Mohn, Klaus, 2009. "Performance appraisal and career opportunities: A case study," UiS Working Papers in Economics and Finance 2009/11, University of Stavanger. [Downloadable!]
  4. Kvaløy, Ola & Olsen, Trond E., 2007. "Cooperation in knowledge-intensive firms," Discussion Papers 2007/27, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
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