IDEAS home Printed from https://ideas.repec.org/a/sae/ecoind/v38y2017i4p588-608.html

The productivity effects of multiple pay incentives

Author

Listed:
  • Andrew Pendleton

    (Durham University Business School, UK)

  • Andrew Robinson

    (Leeds University Business School, UK)

Abstract

Drawing on recent incentive theory and the growing use of multiple incentives by firms, this article examines the effects of combining incentives on workplace labour productivity. Utilizing data from the British Workplace Employment Relations Survey, the article explores whether multiple incentives are more effective than single incentives. It is found that the productivity effects of individualized incentives are enhanced by profit sharing though not by collective payment by result schemes (PBR). Profit sharing also enhances the effect of collective PBR, and it is found that two group incentives are more effective than a single individual incentive. However there are limits on the number of incentive schemes that can be combined effectively. The effects of mixed incentives tend to be greater in workplaces with worker discretion and task variety, thereby providing support for a contingency perspective.

Suggested Citation

  • Andrew Pendleton & Andrew Robinson, 2017. "The productivity effects of multiple pay incentives," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 38(4), pages 588-608, November.
    • Handle: RePEc:sae:ecoind:v:38:y:2017:i:4:p:588-608
    DOI: 10.1177/0143831X15583099
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0143831X15583099
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0143831X15583099?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. James C. Sesil, 2006. "Sharing Decision-Making and Group Incentives: The Impact on Performance," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 27(4), pages 587-607, November.
    2. Jones, Derek C & Kato, Takao, 1995. "The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data," American Economic Review, American Economic Association, vol. 85(3), pages 391-414, June.
    3. Yermack, David, 1997. "Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-476, June.
    4. Martin Conyon & Richard B. Freeman, 2004. "Shared Modes of Compensation and Firm Performance U.K. Evidence," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, pages 109-146, National Bureau of Economic Research, Inc.
    5. Jed Devaro & Fidan Ana Kurtulus, 2010. "An Empirical Analysis of Risk, Incentives and the Delegation of Worker Authority," ILR Review, Cornell University, ILR School, vol. 63(4), pages 641-661, July.
    6. Antti Kauhanen & Sami Napari, 2012. "Performance Measurement and Incentive Plans," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 645-669, July.
    7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    8. Richard Belfield & David Marsden, 2003. "Performance pay, monitoring environments, and establishment performance," International Journal of Manpower, Emerald Group Publishing Limited, vol. 24(4), pages 452-471, June.
    9. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
    10. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    11. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    12. 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.
    13. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
    14. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps.
    15. Bellemare, Charles & Shearer, Bruce, 2009. "Gift giving and worker productivity: Evidence from a firm-level experiment," Games and Economic Behavior, Elsevier, vol. 67(1), pages 233-244, September.
    16. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LLC, vol. 4(2), pages 154-167, June.
    17. Machin, Stephen & Stewart, Mark, 1996. "Trade Unions and Financial Performance," Oxford Economic Papers, Oxford University Press, vol. 48(2), pages 213-241, April.
    18. Berger, Johannes & Herbertz, Claus & Sliwka, Dirk, 2011. "Incentives and Cooperation in Firms: Field Evidence," IZA Discussion Papers 5618, IZA Network @ LISER.
    19. Brenner, Menachem & Sundaram, Rangarajan K. & Yermack, David, 2000. "Altering the terms of executive stock options," Journal of Financial Economics, Elsevier, vol. 57(1), pages 103-128, July.
    20. Roberts, John, 2010. "Designing incentives in organizations," Journal of Institutional Economics, Cambridge University Press, vol. 6(1), pages 125-132, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barbara Bechter & Nils Braakmann & Bernd Brandl, 2021. "Variable Pay Systems and/or Collective Wage Bargaining? Complements or Substitutes?," ILR Review, Cornell University, ILR School, vol. 74(2), pages 443-469, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Uwe Jirjahn & Jens Mohrenweiser, 2025. "Variable Payment Schemes and Productivity: Do Individual‐Based Schemes Really Have a Stronger Influence Than Collective Ones?," Kyklos, Wiley Blackwell, vol. 78(4), pages 1316-1332, November.
    2. Kato, Takao & Kauhanen, Antti, 2013. "Performance Pay and Enterprise Productivity: The Details Matter," ETLA Working Papers 21, The Research Institute of the Finnish Economy.
    3. Bouwens, J.F.M.G. & van Lent, L.A.G.M., 2003. "Effort and Selection Effects of Incentive Contracts," Discussion Paper 2003-130, Tilburg University, Center for Economic Research.
    4. Takao Kato & Ju Ho Lee & Jang-Soo Ryu, 2010. "The productivity effects of profit sharing, employee ownership, stock option and team incentive plans: evidence from Korean panel data," Advances in the Economic Analysis of Participatory & Labor-Managed Firms, in: Advances in the Economic Analysis of Participatory & Labor-Managed Firms, pages 111-135, Emerald Group Publishing Limited.
    5. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Sara Martinez-de-Morentin, 2017. "Performance Measurement and Incentive Intensity," Journal of Labor Research, Springer, vol. 38(4), pages 496-546, December.
    6. Ben-Ner, Avner & Kong, Fanmin & Lluis, Stéphanie, 2012. "Uncertainty, task environment, and organization design: An empirical investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 281-313.
    7. Nobel Prize Committee, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    8. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 8, pages 701-772, Elsevier.
    9. Mirella Damiani & Fabrizio Pompei & Andrea Ricci, 2023. "Tax breaks for incentive pay, productivity and wages: Evidence from a reform in Italy," British Journal of Industrial Relations, London School of Economics, vol. 61(1), pages 188-213, March.
    10. Luis Garicano & Richard A. Posner, 2005. "Intelligence Failures: An Organizational Economics Perspective," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 151-170, Fall.
    11. Takao KATO & Naomi KODAMA, 2015. "Performance-related Pay and Productivity: Evidence from Japan," Discussion papers 15088, Research Institute of Economy, Trade and Industry (RIETI).
    12. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    13. Bias, Daniel & Chen, Lin & Lochner, Benjamin & Schmid, Thomas, 2020. "Measuring workers' financial incentives," FAU Discussion Papers in Economics 07/2020, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    14. Bouwens, J.F.M.G. & van Lent, L.A.G.M., 2003. "Effort and Selection Effects of Incentive Contracts," Other publications TiSEM 46a62de7-d051-4620-93bb-3, Tilburg University, School of Economics and Management.
    15. Garicano, Luis & Palacios-Huerta, Ignacio, 2005. "Sabotage in Tournaments: Making the Beautiful Game a Bit Less Beautiful," CEPR Discussion Papers 5231, Centre for Economic Policy Research.
    16. Hideshi Itoh, 2006. "The Theories of International Outsourcing and Integration : A Theoretical Overview from the Perspective of Organizational Economics," Microeconomics Working Papers 21891, East Asian Bureau of Economic Research.
    17. Derek C. Jones & Takao Kato, 2011. "The Impact of Teams on Output, Quality, and Downtime: An Empirical Analysis Using Individual Panel Data," ILR Review, Cornell University, ILR School, vol. 64(2), pages 215-240, January.
    18. Dur, Robert & Roelfsema, Hein, 2010. "Social exchange and common agency in organizations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 55-63, January.
    19. Avner Ben-Ner & Fanmin Kong & Stephanie Lluis, "undated". "Uncertainty and Organization Design," Working Papers 0107, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
    20. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    21. Agnès Festré & Pierre Garrouste, 2015. "Theory And Evidence In Psychology And Economics About Motivation Crowding Out: A Possible Convergence?," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 339-356, April.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ecoind:v:38:y:2017:i:4:p:588-608. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ekhist.uu.se/english.htm .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.