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Performance Pay in the Hybrid Work Economy

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  • Jean-Victor Alipour

Abstract

The large-scale rise of working from home (WFH) has granted workers unprecedented autonomy over how they allocate their time and effort, while weakening employers' monitoring ability. We ask whether firms use performance-based compensation to align workers' incentives when adopting WFH. To isolate the causal impact of WFH, we use individual-level panel data and exploit workers' exposure to the WFH shock in 2020 through their 2019 job's WFH feasibility. Results show that WFH significantly raises the incidence of performance pay and its share in annual earnings between 2019 and 2023, consistent with principal-agent theory. The shift is concentrated among men and workers without collectively bargained wages. WFH simultaneously reduces uncompensated overtime, particularly in the groups with stronger shifts to performance pay. The pattern is expected when implicit incentives (overtime as a worker-quality signal) are replaced by explicit performance-based contracts (bonus for output). We find evidence for selection on gains, where those more easily induced to WFH are also more likely to adopt performance pay.

Suggested Citation

  • Jean-Victor Alipour, 2026. "Performance Pay in the Hybrid Work Economy," CESifo Working Paper Series 12680, CESifo.
    • Handle: RePEc:ces:ceswps:_12680
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    More about this item

    Keywords

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    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
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions

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