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Performance Pay, Risk Attitudes and Job Satisfaction

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  • Thomas Cornelißen
  • John S. Heywood
  • Uwe Jirjahn

Abstract

We present a sorting model in which workers with greater ability and greater risk tolerance move into performance pay jobs and contrast it with the classic agency model of performance pay. Estimates from the German Socio-Economic Panel confirm testable implications drawn from our sorting model. First, prior to controlling for earnings, workers in performance pay jobs have higher job satisfaction, a proxy for on-the-job utility. Second, after controlling for the higher earnings associated with performance pay, the job satisfaction of those in performance pay jobs is the same as those not in such jobs. Third, those workers in performance pay jobs who have greater risk tolerance routinely report greater job satisfaction. While these findings support the sorting model, they would not be suggested by the classic agency model.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 136.

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Length: 39 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp136

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Keywords: Performance Pay; Worker Heterogeneity; Ability; Risk Preferences; Sorting;

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References

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Citations

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Cited by:
  1. Benjamin Artz, 2010. "Fringe benefits and job satisfaction," International Journal of Manpower, Emerald Group Publishing, Emerald Group Publishing, vol. 31(6), pages 626-644, September.
  2. Thomas Cornelissen & John S. Heywood & Uwe Jirjahn, 2010. "Profit Sharing and Reciprocity: Theory and Survey Evidence," SOEPpapers on Multidisciplinary Panel Data Research 292, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Katrin Sommerfeld, 2012. "Higher and Higher?: Performance Pay and Wage Inequality in Germany," SOEPpapers on Multidisciplinary Panel Data Research 476, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Hammermann, Andrea & Mohnen, Alwine, 2012. "Who Benefits from Benefits? Empirical Research on Tangible Incentives," IZA Discussion Papers 6284, Institute for the Study of Labor (IZA).
  5. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2009. "Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees," MPRA Paper 14244, University Library of Munich, Germany.
  6. Uwe Jirjahn & Steffen Mueller, 2011. "Nonunion Worker Representation, Foreign Owners and the Performance of Establishments," Research Papers in Economics 2011-03, University of Trier, Department of Economics.
  7. Pfeifer, Christian, 2008. "A Note on Risk Aversion and Labour Market Outcomes: Further Evidence from German Survey Data," IZA Discussion Papers 3523, Institute for the Study of Labor (IZA).
  8. Seeun Jung & Kenneth Houngbedji, 2014. "Shirking, Monitoring, and Risk Aversion," PSE Working Papers halshs-00965532, HAL.
  9. Romina Gambacorta & Maria Iannario, 2012. "Statistical models for measuring job satisfaction," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 852, Bank of Italy, Economic Research and International Relations Area.
  10. Fidan Ana Kurtulus & Douglas Kruse & Joseph Blasi, 2011. "Worker Attitudes Towards Employee Ownership, Profit Sharing and Variable Pay," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2011-15, .
  11. Verena Dill & Uwe Jirjahn & Georgi Tsertsvadze, 2011. "Residential Segregation and Immigrants' Satisfaction with the Neighborhood in Germany," Research Papers in Economics 2011-08, University of Trier, Department of Economics.
  12. Thomas Cornelissen & John Heywood & Uwe Jirjahn, 2014. "Reciprocity and Profit Sharing: Is There an Inverse U-shaped Relationship?," Journal of Labor Research, Springer, Springer, vol. 35(2), pages 205-225, June.
  13. K A Bender & C Green & J S Heywood, 2010. "Piece Rates and Workplace Injury: Does Survey Evidence Support Adam Smith?," Working Papers 609288, Lancaster University Management School, Economics Department.
  14. Seeun Jung, 2014. "The Gender Wage Gap and Sample Selection via Risk Attitudes," PSE Working Papers halshs-00965520, HAL.
  15. Rahma Daly & Marc-Arthur Diaye & Jean-Max Koskievic, 2014. "Workers’ Risk Attitude and Financial Participation," Documents de recherche, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne 14-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  16. Colin Green & John Heywood, 2012. "Don't Forget the Gravy! Are Bonuses and Time Rates Complements?," Working Papers 13424023, Lancaster University Management School, Economics Department.
  17. Pouliakas, Konstantinos & Theodoropoulos, Nikolaos, 2009. "Performance Pay as an Incentive for Lower Absence Rates in Britain," MPRA Paper 18238, University Library of Munich, Germany.

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