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Are firms paying more for performance?

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  • Bryson, Alex
  • Forth, John
  • Stokes, Lucy

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

  • Bryson, Alex & Forth, John & Stokes, Lucy, 2014. "Are firms paying more for performance?," LSE Research Online Documents on Economics 60266, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:60266
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    File URL: http://eprints.lse.ac.uk/60266/
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    Cited by:

    1. Jed DeVaro, 2022. "Performance pay, working hours, and health‐related absenteeism," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 61(4), pages 327-352, October.
    2. Bryan, Mark & Bryson, Alex, 2016. "Has performance pay increased wage inequality in Britain?," Labour Economics, Elsevier, vol. 41(C), pages 149-161.
    3. 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.
    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. 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.
    6. Mark Williams & Ying Zhou & Min Zou, 2020. "The Rise in Pay for Performance Among Higher Managerial and Professional Occupations in Britain: Eroding or Enhancing the Service Relationship?," Work, Employment & Society, British Sociological Association, vol. 34(4), pages 605-625, August.
    7. Kato, Takao & Kodama, Naomi, 2017. "Women in the Workplace and Management Practices: Theory and Evidence," IZA Discussion Papers 10788, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Performance pay; bonuses; recession; business cycle; finance;
    All these keywords.

    JEL classification:

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

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