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Performance pay and job quits

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  • Artz, Benjamin
  • Heywood, John S.

Abstract

We use US longitudinal survey data to examine the role of performance pay (other than profit sharing) in worker quit decisions. We argue that performance pay increasingly indicates an internal labor market rather than simply a contemporaneous incentive. Suggestive of this claim, we find that in ever more complete specifications that account for worker and employer characteristics, aggregate earnings, fringe benefits and worker job satisfaction, performance pay is associated with a reduced probability of worker quits. This association remains when including worker fixed effects to control for unmeasured invariant heterogeneity. We investigate how it varies with the type of performance pay and its intensity. We confirm heterogeneity in this association by workplace size.

Suggested Citation

  • Artz, Benjamin & Heywood, John S., 2025. "Performance pay and job quits," Journal of Economic Behavior & Organization, Elsevier, vol. 239(C).
    • Handle: RePEc:eee:jeborg:v:239:y:2025:i:c:s0167268125004111
    DOI: 10.1016/j.jebo.2025.107294
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    Keywords

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    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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