The relevance of size, gender and ownership for performance-related pay schemes

With performance-related pay, the reward for an employee is partly dependent upon its own performance and/or on the performance of the organisation. In the Netherlands, performance-related pay is being implemented in SMEs an increasing scale. Currently, about 25% of Dutch SMEs make use of some kind of performance-related pay scheme, which may include profit sharing, bonuses, gratuities and stock options. The aim of this study is to increase our understanding of the usage of performance-related pay schemes in Dutch small and medium-sized enterprises. In particular, we examine whether firm size, ownership structure, and gender of the entrepreneur and employees predict the presence of performance-related pay schemes. The results show that larger SMEs are more likely to use performance-related pay than smaller SMEs (as can be expected). We also find strong support for the presence of a gender effect. The results indicate that for male entrepreneurs, the use of performance-related pay is independent of the gender composition of the work force. For female entrepreneurs, we find that the usage of performance-related pay increases with the share of male employees. This relationship is such, that for firms where more than 70% of the workforce is male, female entrepreneurs are more likely to apply performance-related pay then male entrepreneurs. A possible explanation is that female entrepreneurs are more inclined to take the preferences of their employees into account when they determine the compensation scheme of their enterprise. Finally, the ownership structure also seems to matter. The results suggest that we should differentiate between (at least) three different ownership structures: single-owned and managed firms, family firms (firms with multiple owners that have family ties between them), and multiple-owned non-family firms. Once we do so, we find that single-owned and managed firms are just as likely to use performance-related pay schemes as family firms. Both types of firms use performance-related pay significantly less often than multiple-owned non-family firms.