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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 a) employee motivation and work behaviour across the British public services; and b) workplace performance. The latter uses an index of organisational performance based on line-manager judgements. 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 de-motivating effect arising from difficulties of measuring and evaluating performance fairly. These motivational outcomes are found to affect workplace performance. Organisational commitment appears to offset some of the negative effects of PRP. In contrast to the many studies of top executives, sales and sports personnel, our study examines PRP for large numbers of ordinary employees.

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File URL: http://cep.lse.ac.uk/pubs/download/DP0503.pdf
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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0503.

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Date of creation: Aug 2001
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Handle: RePEc:cep:cepdps:dp0503

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: performance-related-pay; incentives; performance measurement; organisational commitment; public sector.;

Find related papers by JEL classification:

• J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
• J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
• M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

References

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1. Stephen Nickell & Luca Nunziata & Wolfgang Ochel & Glenda Quintini, 2001. "The Beveridge Curve, Unemployment and Wages in the OECD from the 1960s to the 1990s - Preliminary Version," CEP Discussion Papers dp0502, Centre for Economic Performance, LSE.
2. Stephen Machin, 2000. "Union Decline in Britain," British Journal of Industrial Relations, London School of Economics, vol. 38(4), pages 631-645, December.
   
   • Stephen Machin, 2000. "Union Decline in Britain," CEP Discussion Papers dp0455, Centre for Economic Performance, LSE.

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Cited by:

1. Engellandt, Axel & Riphahn, Regina T., 2004. "Incentive Effects of Bonus Payments: Evidence from an International Company," IZA Discussion Papers 1229, Institute for the Study of Labor (IZA).
2. Kauhanen, Antti & Piekkola, Hannu, 2004. "What Makes Performance-related Pay Schemes Work? Finnish Evidence," Discussion Papers 929, The Research Institute of the Finnish Economy.
   
   • Antti Kauhanen & Hannu Piekkola, 2006. "What Makes Performance-Related Pay Schemes Work? Finnish Evidence," Journal of Management and Governance, Springer, vol. 10(2), pages 149-177, 05.
3. Zwick, Thomas & Wolf, Elke & Beblo, Miriam, 2002. "Erfolgsabhängige Vergütung: Ein sicherer Weg zur Steigerung der Leistung von Top-Managern?," ZEW Discussion Papers 02-72, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
4. Richard Belfield & David Marsden, 2004. "Unions, Performance-Related Pay and Procedural Justice: the Case of Classroom Teachers," CEP Discussion Papers dp0660, Centre for Economic Performance, LSE.
5. Pouliakas, Konstantinos, 2010. "Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction," IZA Discussion Papers 4713, Institute for the Study of Labor (IZA).
   
   • Konstantinos Pouliakas, 2010. "Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction," Kyklos, Wiley Blackwell, vol. 63(4), pages 597-626, November.
6. Finn Christensen & James Manley & Louise Laurence, 2010. "The Allocation of Merit Pay in Academia," Working Papers 2010-13, Towson University, Department of Economics, revised Jul 2010.
7. repec:lan:wpaper:2928 is not listed on IDEAS
8. V. Bhaskar & Steinar Holden, 2002. "Wage Differentiation via Subsidised General Training," Economics Discussion Papers 549, University of Essex, Department of Economics.
   
   • Bhaskar, V. & Holden, Steinar, 2003. "Wage Differentiation via Subsidised General Training," Memorandum 35/2002, Oslo University, Department of Economics.
   • Steinar Holden & V. Bhaskar, 2003. "Wage Differentiation via Subsidised General Training," CESifo Working Paper Series 848, CESifo Group Munich.
9. Finn Christensen & James Manley & Louise Laurence, 2011. "The Allocation of Merit Pay in Academia: A Case Study," Economics Bulletin, AccessEcon, vol. 31(2), pages 1548-1562.
10. repec:lan:wpaper:2926 is not listed on IDEAS
11. Pouliakas, Konstantinos, 2008. "Pay enough, don’t pay too much or don’t pay at all? An empirical study of the non-monotonic impact of incentives on job satisfaction," MPRA Paper 10031, University Library of Munich, Germany.
12. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2009. "Rewarding Carrots & Crippling Sticks: Eliciting Employee Preferences for the Optimal Incentive Mix in Europe," MPRA Paper 14167, University Library of Munich, Germany.

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