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Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction

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Author Info
McCausland, David
Pouliakas, Konstantinos
Theodossiou, Ioannis

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Abstract

Using an econometric procedure that corrects for both self-selection of individuals into their preferred compensation scheme and wage endogeneity, this study investigates whether significant differences exist in the job satisfaction of individuals receiving performance-related pay (PRP) compared to those on alternative compensation plans. Using data from four waves of the British Household Panel Survey (BHPS), it is found that PRP exerts a positive effect on the mean job satisfaction of (very) high-paid workers only. A potential explanation for this pattern could be that for lower-paid employees PRP is perceived to be controlling, whereas higher-paid workers derive a utility benefit from what they regard as supportive reward schemes. Using PRP as an incentive device in the UK could therefore be counterproductive in the long run for certain low-paid occupations.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14243.

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Date of creation: 22 May 2005
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Publication status: Published in International Journal of Manpower 26.7(2005): pp. 636-659
Handle: RePEc:pra:mprapa:14243

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Related research
Keywords: performance pay; job satisfaction; selectivity bias; endogeneity; crowding-out; intrinsic motivation; UK;

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Find related papers by JEL classification:
J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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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. Benjamin Artz, 2008. "Fringe Benefits and Job Satisfaction," Working Papers 08-03, UW-Whitewater, Department of Economics. [Downloadable!]
  2. John S Heywood & Colin Green, 2007. "Performance pay, sorting and the dimensions of job satisfaction," Working Papers 004731, Lancaster University Management School, Economics Department. [Downloadable!]
  3. Federica Origo & Laura Pagani, 2006. "Is Work Flexibility a Stairway to Heaven? The Story Told by Job Satisfaction in Europ," Working Papers 97, University of Milano-Bicocca, Department of Economics, revised Jun 2006. [Downloadable!]
  4. Thomas Cornelißen & John S. Heywood & Uwe Jirjahn, 2008. "Performance Pay, Risk Attitudes and Job Satisfaction," SOEPpapers 136, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  5. Pouliakas, Konstantinos & Theodoropoulos, Nikolaos, 2009. "Variety of Performance Pay and Firm Performance: Effect of Financial Incentives on Worker Absence and Productivity," MPRA Paper 18238, University Library of Munich, Germany. [Downloadable!]
  6. Konstantinos Pouliakas & Ioannis Theodossiou, 2005. "Socio-Economic Differences in the Perceived Quality of High and Low-Paid Jobs in Europe," Labor and Demography 0506002, EconWPA. [Downloadable!]
  7. Pouliakas, Konstantinos, 2008. "Pay enough, don’t pay too much or don’t pay at all? An empirical study of the non-monotonic impact of incentives on job satisfaction," MPRA Paper 10031, University Library of Munich, Germany. [Downloadable!]
  8. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2009. "Rewarding Carrots & Crippling Sticks: Eliciting Employee Preferences for the Optimal Incentive Mix in Europe," MPRA Paper 14167, University Library of Munich, Germany. [Downloadable!]
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