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Why Does Performance Pay De-Motivate: Financial Incentives versus Perfrormance Appraisal

Author

Listed:
  • Stephen French
  • Katsuyuki Kubo
  • David Marsden

Abstract

The sheer scale and speed of the shift of payment system from time-based salaries to performance-related pay, PRP, in the British public services provides a unique opportunity to test the effects of incentive pay schemes. This study is based on the first large scale survey designed to measure the effects of performance related pay on employee motivation and work behaviour across the British public services. While there is evidence of a clear incentive effect for those gaining above average PRP, it is likely that it is offset by a more widespread demotivating effect arising from difficulties of measuring performance fairly. Organisational commitment appears to offset some of the negative effects of PRP.

Suggested Citation

  • Stephen French & Katsuyuki Kubo & David Marsden, 2000. "Why Does Performance Pay De-Motivate: Financial Incentives versus Perfrormance Appraisal," CEP Discussion Papers dp0476, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0476
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    References listed on IDEAS

    as
    1. F Green & Steven McIntosh, 2000. "Working on the Chain Gang? An Examination of Rising Effort Levels in Europe in the 1990s," CEP Discussion Papers dp0465, Centre for Economic Performance, LSE.
    2. Burgess, Simon & Turon, Helene, 2000. "Unemployment dynamics, duration and equilibrium: evidence from Britain," LSE Research Online Documents on Economics 20162, London School of Economics and Political Science, LSE Library.
    3. Stephen Nickell & Luca Nunziata, 2000. "Employment Patterns in OECD Countries," CEP Discussion Papers dp0448, Centre for Economic Performance, LSE.
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    Cited by:

    1. Kerstin Grosch & Holger A. Rau, 2020. "Procedural Unfair Wage Differentials And Their Effects On Unethical Behavior," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1689-1706, October.
    2. Holden, Steinar, 2012. "Implications of Insights from Behavioral Economics for Macroeconomic Models," Memorandum 25/2012, Oslo University, Department of Economics.
    3. Donghun Yoon, 2021. "How Can Personnel Performance Evaluation Systems Be Improved?," SAGE Open, , vol. 11(1), pages 21582440209, January.
    4. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral economics and macroeconomic models," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 133-147.
    5. David Marsden, 2004. "Unions and Procedural Justice: An Alternative to the ‘Common Rule’," Palgrave Macmillan Books, in: Anil Verma & Thomas A. Kochan (ed.), Unions in the 21st Century, chapter 10, pages 130-145, Palgrave Macmillan.

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    More about this item

    Keywords

    Performance related pay; incentives; performance measurement; organisational commitment; public sector;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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