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The Paradox of Performance Related Pay Systems: Why Do We Keep Adopting Them in the Face of Evidence that they Fail to Motivate?

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Author Info
David Marsden
Abstract

This paper considers one of the paradoxes of incentive pay used in Britain's public services,namely that despite much evidence that it does not motivate employees, it continues to bewidely used. It is argued that behind this evidence, there are significant examples in which itsuse has been associated with improved performance. A good part of this is to be explained bythe way performance pay links pay and appraisal, and the pressure this puts on line managersto set clearer goals for their staff. There is also some evidence that the goal setting is theoutcome of a form of integrative, or positive sum, negotiation between individual employeesand their managers, and that it is not just 'top down'.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0946.

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Date of creation: Aug 2009
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Handle: RePEc:cep:cepdps:dp0946

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Related research
Keywords: pay for performance; public sector pay;

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Find related papers by JEL classification:
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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  1. Richard Belfield & David Marsden, 2006. "Pay for Performance Where Output is Hard to Measure: the Case of Performance Pay for School Teachers," CEP Discussion Papers dp0747, Centre for Economic Performance, LSE. [Downloadable!]
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This page was last updated on 2009-11-18.

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