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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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  • 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 be widely used. It is argued that behind this evidence, there are significant examples in which its use has been associated with improved performance. A good part of this is to be explained by the way performance pay links pay and appraisal, and the pressure this puts on line managers to set clearer goals for their staff. There is also some evidence that the goal setting is the outcome of a form of integrative, or positive sum, negotiation between individual employees and their managers, and that it is not just 'top down'.

Suggested Citation

  • David Marsden, 2009. "The Paradox of Performance Related Pay Systems: 'Why Do We Keep Adopting Them in the Face of Evidence that they Fail to Motivate?'," CEP Discussion Papers dp0946, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0946
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    References listed on IDEAS

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    1. Marsden, David & Belfield, Richard, 2006. "Pay for performance where output is hard to measure: the case of performance pay for school teachers," LSE Research Online Documents on Economics 22871, London School of Economics and Political Science, LSE Library.
    2. Tirole, Jean, 1994. "The Internal Organization of Government," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 1-29, January.
    3. Howard Glennerster, 2001. "United Kingdom Education 1997-2001," CASE Papers 050, Centre for Analysis of Social Exclusion, LSE.
    4. David Marsden & Ray Richardson, 1994. "Performing for Pay? The Effects of ‘Merit Pay’ on Motivation in a Public Service," British Journal of Industrial Relations, London School of Economics, vol. 32(2), pages 243-261, June.
    5. Kaufman, Herbert, 1956. "Emerging Conflicts in the Doctrines of Public Administration," American Political Science Review, Cambridge University Press, vol. 50(4), pages 1057-1073, December.
    6. Atkinson, Adele & Burgess, Simon & Croxson, Bronwyn & Gregg, Paul & Propper, Carol & Slater, Helen & Wilson, Deborah, 2009. "Evaluating the impact of performance-related pay for teachers in England," Labour Economics, Elsevier, vol. 16(3), pages 251-261, June.
    7. Howard Glennerster, 2002. "United Kingdom Education 1997--2001," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 18(2), pages 120-136, June.
    8. Howard Glennerster, 2001. "United Kingdom Education 1997-2001," CASE Papers case50, Centre for Analysis of Social Exclusion, LSE.
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    Cited by:

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    2. Sila, Urban, 2009. "Can family-support policies help explain differences in working hours across countries?," LSE Research Online Documents on Economics 28684, London School of Economics and Political Science, LSE Library.
    3. Dr. Ambrose Kemboi, 2015. "Performance Contracting As a Strategy for Enhanced Employee Commitment: A Case of the Vocational Training Centre Sikri, Kenya," International Journal of Business and Social Research, LAR Center Press, vol. 5(12), pages 56-67, December.
    4. Makovskaya, N.V. (Маковская, Н.В.), 2019. "The principles of the formation of personnel academic strategies in Belarus [Принципы Формирования Кадровых Академических Стратегий В Беларуси]," Economy of science, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 271-276, December.
    5. Dr. Ambrose Kemboi, 2015. "Performance Contracting As a Strategy for Enhanced Employee Commitment: A Case of the Vocational Training Centre Sikri, Kenya," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(12), pages 56-67, December.
    6. Konstantinos Pouliakas & Nikolaos Theodoropoulos, 2012. "The Effect of Variable Pay Schemes on Workplace Absenteeism," Research in Labor Economics, in: Research in Labor Economics, pages 109-157, Emerald Group Publishing Limited.

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    More about this item

    Keywords

    pay for performance; public sector pay;

    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 - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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