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The Tenuous Relationship between Effort and Performance Pay

  • Kvaløy, Ola

    ()

    (UiS Business School, University of Stavanger)

  • Olsen, Trond E.

    ()

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

When a worker is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the worker's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.

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File URL: http://hdl.handle.net/11250/164200
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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2012/8.

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Length: 28 pages
Date of creation: 29 Jun 2012
Date of revision:
Handle: RePEc:hhs:nhhfms:2012_008
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
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