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The Tenuous Relationship between Effort and Performance Pay

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  • Kvaløy, Ola

    (UiS)

  • Olsen, Trond

    (NHH)

Abstract

When a worker is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the worker's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.

Suggested Citation

  • Kvaløy, Ola & Olsen, Trond, 2012. "The Tenuous Relationship between Effort and Performance Pay," UiS Working Papers in Economics and Finance 2012/11, University of Stavanger.
    • Handle: RePEc:hhs:stavef:2012_011
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    1. On the negative correlation between effort and pay
      by Economic Logician in Economic Logic on 2012-06-29 20:49:00

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