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Are Firms Paying More For Performance?

Author

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  • Alex Bryson
  • John Forth
  • Lucy Stokes

Abstract

Despite its potential to raise productivity, performance-related-pay (PRP) is not widespread in market-oriented economies. Furthermore, despite secular changes conducive to its take-up, there is mixed evidence as to whether it has become more prominent over time. Ours is the first paper to present firm-level data for the Britain on both the incidence and size of bonus payments in the 2000s. We decompose the share of the total wage bill accounted for by bonuses into the shares of employment in the PRP and non-PRP sectors, the ratio of base pay between the two sectors, and the gearing of bonus payments to base pay within the PRP sector. We show that there was some growth in the share of total pay accounted for by bonuses in Britain in the mid-2000s. However this rise - and subsequent fluctuations since the onset of recession in 2008 - can be almost entirely explained by changes in the gearing of bonus to base pay within the PRP sector. There has been no substantial change in the percentage of employment accounted for by PRP firms; if anything it has fallen over the past decade. Furthermore, the movements in the gearing of bonuses to base pay in the economy at large are heavily influenced by changes in the Finance industry: a sector which accounts for a large proportion of all bonus payments in the British economy.

Suggested Citation

  • Alex Bryson & John Forth & Lucy Stokes, 2014. "Are Firms Paying More For Performance?," CEP Discussion Papers dp1272, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1272
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    References listed on IDEAS

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    1. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    2. Brian Bell & John Van Reenen, 2010. "Bankers' Pay and Extreme Wage Inequality in the UK," CEP Special Papers 21, Centre for Economic Performance, LSE.
    3. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2007. "Incentives for Managers and Inequality among Workers: Evidence from a Firm-Level Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 729-773.
    4. 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.
    5. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
    6. Bruce Shearer, 2004. "Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 513-534.
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    Citations

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    Cited by:

    1. Bryan, Mark & Bryson, Alex, 2016. "Has performance pay increased wage inequality in Britain?," Labour Economics, Elsevier, vol. 41(C), pages 149-161.
    2. Kvaløy, Ola & Nieken, Petra & Schöttner, Anja, 2015. "Hidden benefits of reward: A field experiment on motivation and monetary incentives," European Economic Review, Elsevier, vol. 76(C), pages 188-199.
    3. repec:bla:brjirl:v:55:y:2017:i:4:p:778-801 is not listed on IDEAS
    4. Lucy Stokes & Alex Bryson & John Forth & Martin Weale, 2017. "Who Fared Better? The Fortunes of Performance Pay and Fixed Pay Workers through Recession," British Journal of Industrial Relations, London School of Economics, vol. 55(4), pages 778-801, December.
    5. repec:spr:jlabre:v:39:y:2018:i:1:d:10.1007_s12122-017-9260-9 is not listed on IDEAS
    6. Kato, Takao & Kodama, Naomi, 2017. "Women in the Workplace and Management Practices: Theory and Evidence," IZA Discussion Papers 10788, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Performance pay; bonuses; recession; business cycle; finance;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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