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Performance-related pay and labor productivity

Author

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  • Claudio Lucifora

    (Università Cattolica, Italy, LSE, UK, and IZA, Germany)

Abstract

Many firms offer employees a remuneration package that links pay to performance as a means of motivation. It also improves efficiency and reduces turnover and absenteeism. The effects on productivity depend on the type of scheme employed (individual or group performance) and its design (commissions, piece-rate or sharing schemes). Individual incentives demonstrate the largest effect, while group or team incentives are smaller in magnitude. The case for government intervention through tax breaks and other financial incentives is highly debated due to differences across firms and the potential for economic inefficiencies.

Suggested Citation

  • Claudio Lucifora, 2015. "Performance-related pay and labor productivity," IZA World of Labor, Institute of Labor Economics (IZA), pages 152-152, May.
  • Handle: RePEc:iza:izawol:journl:y:2015:n:152
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    References listed on IDEAS

    as
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    Cited by:

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    2. Ricardo Pagan & Miguel Ángel Malo, 2021. "Performance Appraisal and Job Satisfaction for Workers Without and With Disabilities by Gender," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 153(3), pages 1011-1039, February.
    3. Devicienti, Francesco & Manello, Alessandro & Vannoni, Davide, 2017. "Technical efficiency, unions and decentralized labor contracts," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1129-1141.
    4. Andrea Garnero & François Rycx & Isabelle Terraz, 2020. "Productivity and Wage Effects of Firm‐Level Collective Agreements: Evidence from Belgian Linked Panel Data," British Journal of Industrial Relations, London School of Economics, vol. 58(4), pages 936-972, December.
    5. Andreas Peichl & Julia Schricker & Henrike von Platen & Ulf Rinne & Hilmar Schneider & Ute Klammer & Christina Boll & Ingo Weller & Lena Göbel, 2019. "Wage Transparency Act against wage discrimination: much effort, little benefit?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(04), pages 03-26, February.
    6. Nikolaos Georgantzis & Efi Vasileiou & Iordanis Kotzaivazoglou, 2017. "Peer norm guesses and self-reported attitudes towards performance-related pay," PLOS ONE, Public Library of Science, vol. 12(4), pages 1-15, April.
    7. Jirjahn, Uwe & Mohrenweiser, Jens, 2023. "Variable Payment Schemes and Productivity: Do Individual-Based Schemes Really Have a Stronger Influence than Collective Ones?," IZA Discussion Papers 16267, Institute of Labor Economics (IZA).
    8. Uwe Jirjahn, 2015. "Performance Pay and Productivity: The Moderating Role of a High-Wage Policy," Research Papers in Economics 2015-04, University of Trier, Department of Economics.
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    10. Belloc, Filippo, 2022. "Profit sharing and innovation across organizational layers," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 598-623.
    11. Mills, Brian M., 2017. "Technological innovations in monitoring and evaluation: Evidence of performance impacts among Major League Baseball umpires," Labour Economics, Elsevier, vol. 46(C), pages 189-199.

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    More about this item

    Keywords

    performance-related pay; productivity; pay incentives; financial participation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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