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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?'

  • David Marsden

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'.

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File URL: http://cep.lse.ac.uk/pubs/download/dp0946.pdf
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0946.

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Date of creation: Aug 2009
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Handle: RePEc:cep:cepdps:dp0946
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Tirole, J., 1993. "The Internal Organization of Government," Working papers 93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Adele Atkinson & Simon Burgess & Bronwyn Croxson & Paul Gregg, 2004. "Evaluating the Impact of Performance-related Pay for Teachers in England," The Centre for Market and Public Organisation 04/113, Department of Economics, University of Bristol, UK.
  3. 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.
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