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The Impact of Higher Fixed Pay and Lower Bonuses on Productivity

Author

Listed:
  • Maurice J. G. Bun

    (University of Amsterdam)

  • Leo C. E. Huberts

    (University of Amsterdam)

Abstract

This study analyzes the effects of performance related pay on productivity exploiting a change in the payment structure of a large Dutch marketing company. Specifically, we investigate the consequences for company sales of higher fixed pay in combination with lower bonuses. Exploiting shift level data of individual workers we find that average productivity decreases when the pay structure shifts more to fixed pay. Further analysis shows that this drop in productivity is larger for older workers and for high-ability employees, while over time the negative effect of the new system becomes smaller.

Suggested Citation

  • Maurice J. G. Bun & Leo C. E. Huberts, 2018. "The Impact of Higher Fixed Pay and Lower Bonuses on Productivity," Journal of Labor Research, Springer, vol. 39(1), pages 1-21, March.
    • Handle: RePEc:spr:jlabre:v:39:y:2018:i:1:d:10.1007_s12122-017-9260-9
    DOI: 10.1007/s12122-017-9260-9
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    References listed on IDEAS

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    9. Derek C. Jones & Panu Kalmi & Antti Kauhanen, 2006. "Human Resource Management Policies and Productivity: New Evidence from An Econometric Case Study," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(4), pages 526-538, Winter.
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    Cited by:

    1. David Butler & Robert Butler & Robert Simmons, 2022. "Contracts, pay and performance in the sport of kings: Evidence from horse racing," British Journal of Industrial Relations, London School of Economics, vol. 60(1), pages 152-175, March.

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    More about this item

    Keywords

    Bonuses; Fixed pay; Performance pay; Piece rate; Productivity;
    All these keywords.

    JEL classification:

    • J00 - Labor and Demographic Economics - - General - - - General
    • 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

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