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Who Pays for Performance?

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Author Info
Erling Barth () (Institute for Social Research, University of Oslo and IZA Bonn)
Bernt Bratsberg () (Frisch Centre for Economic Research and Kansas State University)
Torbjørn Hægeland () (Statistics Norway and Frisch Centre for Economic Research)
Oddbjørn Raaum () (Frisch Centre for Economic Research)

Additional information is available for the following registered author(s):

Abstract

Using Norwegian establishment surveys from 1997 and 2003, we show that performancerelated pay is more prevalent in firms where workers of the main occupation have a high degree of autonomy in how to organize their work. This observation supports an interpretation of incentive pay as motivated by agency problems. Performance-related pay is also more widespread in large firms. Traditionally, wage setting in the Norwegian labor market has been dominated by negotiations between trade unions and employer associations at the central and local levels, with a fixed hourly wage as a predominant element of the wage scheme. Our results show that performance-related pay is less common in highly unionized firms and in firms where wages are determined through centralized bargaining. Nevertheless, the evidence presented in this paper reveals that performance pay is on the rise in Norway, even after accounting for changes in industry structure, bargaining regime, and union density. Finally, we find that the incidence of performance-related pay relates positively to product-market competition and foreign ownership.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2142.

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Length: 36 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2142

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Related research
Keywords: performance related pay; agency problems; compensation methods;

Other versions of this item:

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

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March. [Downloadable!] (restricted)
    Other versions:
  2. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September. [Downloadable!]
  3. Foss, Nicolai J. & Laursen, Keld, 2005. "Performance pay, delegation and multitasking under uncertainty and innovativeness: An empirical investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 246-276, October. [Downloadable!] (restricted)
    Other versions:
  4. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December. [Downloadable!] (restricted)
  5. Charles Brown, 1990. "Firms' choice of method of pay," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 165-182, February.
    Other versions:
  6. Erling Barth, Bernt Bratsberg, Torbjørn Hægeland and Oddbjørn Raaum, 2008. "Performance Pay and Within-Firm Wage Inequality," Discussion Papers 535, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  7. Edward P. Lazear, 1986. "Incentive Contracts," NBER Working Papers 1917, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 917-962, August.
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  9. George Baker, 2000. "The Use of Performance Measures in Incentive Contracting," American Economic Review, American Economic Association, vol. 90(2), pages 415-420, May. [Downloadable!] (restricted)
  10. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October. [Downloadable!] (restricted)
  11. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  12. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Blackwell Publishing, vol. 64(2), pages 191-213, April. [Downloadable!] (restricted)
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  13. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, 09. [Downloadable!] (restricted)
    Other versions:
  14. Fumas, Vincente Salas, 1993. "Incentives and supervision in hierarchies," Journal of Economic Behavior & Organization, Elsevier, vol. 21(3), pages 315-331, August. [Downloadable!] (restricted)
  15. Lorenzo Cappellari & Stephen P. Jenkins, 2003. "MVPROBIT: Stata module to calculate multivariate probit regression using simulated maximum likelihood," Statistical Software Components S432601, Boston College Department of Economics, revised 25 Jan 2006. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hunnes, Arngrim & Kvaløy, Ola & Mohn, Klaus, 2009. "Performance appraisal and career opportunities: A case study," UiS Working Papers in Economics and Finance 2009/11, University of Stavanger. [Downloadable!]
  2. Kvaløy, Ola & Olsen, Trond E., 2006. "The rise of individual performance pay," Discussion Papers 2006/22, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
  3. Erling Barth, Bernt Bratsberg, Torbjørn Hægeland and Oddbjørn Raaum, 2008. "Performance Pay and Within-Firm Wage Inequality," Discussion Papers 535, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  4. Kvaløy, Ola & Olsen, Trond E., 2007. "Cooperation in knowledge-intensive firms," Discussion Papers 2007/27, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
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