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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
W.D. McCausland (University of Aberdeen)
K. Pouliakas (University of Aberdeen)
I. Theodossiou (University of Aberdeen)

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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 EconWPA in its series Labor and Demography with number 0505019.

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Length: 41 pages
Date of creation: 24 May 2005
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Handle: RePEc:wpa:wuwpla:0505019

Note: Type of Document - pdf; pages: 41
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Related research
Keywords: Performance-related pay; job satisfaction; self-selection;

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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. 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!]
  2. 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!]
  3. 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!]
  4. 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!]
  5. Benjamin Artz, 2008. "Fringe Benefits and Job Satisfaction," Working Papers 08-03, UW-Whitewater, Department of Economics. [Downloadable!]
  6. 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!]
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