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The Paradox of Performance Related Pay Systems: 'Why Do We Keep Adopting Them in the Face of Evidence that they Fail to Motivate?'

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  • David Marsden

Abstract

This paper considers one of the paradoxes of incentive pay used in Britain's public services, namely that despite much evidence that it does not motivate employees, it continues to be widely used. It is argued that behind this evidence, there are significant examples in which its use has been associated with improved performance. A good part of this is to be explained by the way performance pay links pay and appraisal, and the pressure this puts on line managers to set clearer goals for their staff. There is also some evidence that the goal setting is the outcome of a form of integrative, or positive sum, negotiation between individual employees and their managers, and that it is not just 'top down'.

Suggested Citation

  • David Marsden, 2009. "The Paradox of Performance Related Pay Systems: 'Why Do We Keep Adopting Them in the Face of Evidence that they Fail to Motivate?'," CEP Discussion Papers dp0946, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0946
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    References listed on IDEAS

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    1. Richard Belfield & David Marsden, 2006. "Pay for Performance Where Output is Hard to Measure: the Case of Performance Pay for School Teachers," CEP Discussion Papers dp0747, Centre for Economic Performance, LSE.
    2. Tirole, Jean, 1994. "The Internal Organization of Government," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 1-29, January.
    3. repec:cup:apsrev:v:50:y:1956:i:04:p:1057-1073_06 is not listed on IDEAS
    4. Atkinson, Adele & Burgess, Simon & Croxson, Bronwyn & Gregg, Paul & Propper, Carol & Slater, Helen & Wilson, Deborah, 2009. "Evaluating the impact of performance-related pay for teachers in England," Labour Economics, Elsevier, vol. 16(3), pages 251-261, June.
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    Cited by:

    1. Oulton, Nicholas & Rincon-Aznar, Ana, 2009. "Rates of return and alternative measures of capital input: 14 countries and 10 branches, 1971-2005," LSE Research Online Documents on Economics 28687, London School of Economics and Political Science, LSE Library.
    2. Sila, Urban, 2009. "Can family-support policies help explain differences in working hours across countries?," LSE Research Online Documents on Economics 28684, London School of Economics and Political Science, LSE Library.
    3. Konstantinos Pouliakas & Nikolaos Theodoropoulos, 2012. "The Effect of Variable Pay Schemes on Workplace Absenteeism," Research in Labor Economics,in: Research in Labor Economics, volume 36, pages 109-157 Emerald Publishing Ltd.

    More about this item

    Keywords

    pay for performance; public sector pay;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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