Pay enough, don’t pay too much or don’t pay at all? An empirical study of the non-monotonic impact of incentives on job satisfaction
This paper attempts to test the non-monotonic effect of monetary incentives on job satisfaction. Specifically, 8 waves (1998-2005) of the British Household Panel Survey (BHPS) are used to investigate the ceteris paribus association between the intensity of bonus/profit-sharing payments and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that relatively ‘small’ bonuses exert a significant negative effect on worker satisfaction. In contrast, job utility is found to rise only in response to ‘large’ bonus payments, primarily in skilled, non-unionized private sector jobs. The empirical evidence of the paper is therefore consistent with a ‘V-effect’ of incentives, suggesting that employers wishing to motivate their staff should indeed “pay enough or don’t pay at all”.
|Date of creation:||14 Aug 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
- Aldo Rustichini & Uri Gneezy, 2000.
"A fine is a price,"
Natural Field Experiments
00258, The Field Experiments Website.
- Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988.
" Compensation and Incentives: Practice vs. Theory,"
Journal of Finance,
American Finance Association, vol. 43(3), pages 593-616, July.
- Armin Falk & Michael Kosfeld, .
"The Hidden Costs of Control,"
IEW - Working Papers
250, Institute for Empirical Research in Economics - University of Zurich.
- Tor Eriksson & Marie Claire Villeval, 2004.
"Other-Regarding Preferences and Performance Pay. An Experiment on Incentives and Sorting,"
- Tor Eriksson & Marie Claire Villeval, 2004. "Other-Regarding Preferences and Performance Pay – An Experiment on Incentives and Sorting," Post-Print halshs-00175006, HAL.
- Tor Eriksson & Marie Claire Villeval, 2004. "Other-Regarding Preferences and Performance Pay. An Experiment on Incentives and Sorting," Post-Print halshs-00176769, HAL.
- Marie-Claire Villeval & Tor Eriksson, 2004. "Other-Regarding Preferences and Performance Pay – An Experiment on Incentives and Sorting," Working Papers 0408, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Eriksson, Tor & Villeval, Marie Claire, 2004. "Other-Regarding Preferences and Performance Pay – An Experiment on Incentives and Sorting," IZA Discussion Papers 1191, Institute for the Study of Labor (IZA).
- Tor Eriksson & Marie Claire Villeval, 2004. "Other-Regarding Preferences and Performance Pay - An Experiment on Incentives and Sorting," Post-Print halshs-00180115, HAL.
- Sarah Brown & John G. Sessions, 2003. "Attitudes, Expectations and Sharing," LABOUR, CEIS, vol. 17(4), pages 543-569, December.
- Stephen French & Katsuyuki Kubo & David Marsden, 2001.
"Does Performance Pay De-Motivate, and Does It Matter?,"
CEP Discussion Papers
dp0503, Centre for Economic Performance, LSE.
- Stephen French & Katsuyuki Kubo & David Marsden, 2001. "Does performance pay de-motivate, and does it matter?," LSE Research Online Documents on Economics 3637, London School of Economics and Political Science, LSE Library.
- Clark, Andrew E & Oswald, Andrew J, 1993.
"Satisfaction and Comparison Income,"
Economics Discussion Papers
10018, University of Essex, Department of Economics.
- repec:lan:wpaper:2873 is not listed on IDEAS
- Pouliakas, Konstantinos & Theodossiou, Ioannis, 2009. "Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees," MPRA Paper 14244, University Library of Munich, Germany.
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Fehr, Ernst & Gachter, Simon, 1998. "Reciprocity and economics: The economic implications of Homo Reciprocans1," European Economic Review, Elsevier, vol. 42(3-5), pages 845-859, May.
- Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
- Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.
- Kreps, David M, 1997. "Intrinsic Motivation and Extrinsic Incentives," American Economic Review, American Economic Association, vol. 87(2), pages 359-64, May.
- Charles Brown, 1992.
"Wage Levels and Method of Pay,"
RAND Journal of Economics,
The RAND Corporation, vol. 23(3), pages 366-375, Autumn.
- Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
- Richard B. Freeman, 1977.
"Job Satisfaction as an Economic Variable,"
NBER Working Papers
0225, National Bureau of Economic Research, Inc.
- Hörisch, Hannah & Strassmair, Christina, 2008.
"An experimental test of the deterrence hypothesis,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
229, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Edward P. Lazear, 2000.
"Performance Pay and Productivity,"
American Economic Review,
American Economic Association, vol. 90(5), pages 1346-1361, December.
- W.D. McCausland & K. Pouliakas & I. Theodossiou, 2005.
"Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction,"
Labor and Demography
- McCausland, David & Pouliakas, Konstantinos & Theodossiou, Ioannis, 2005. "Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction," MPRA Paper 14243, University Library of Munich, Germany.
- Daniel Parent, 1997.
"Methods of Pay and Earnings: A Longitudinal Analysis,"
CIRANO Working Papers
- Daniel Parent, 1999. "Methods of Pay and Earnings: A Longitudinal Analysis," ILR Review, Cornell University, ILR School, vol. 53(1), pages 71-86, October.
- Ada Ferrer-i-Carbonell & Paul Frijters, 2002.
"How important is Methodology for the Estimates of the Determinants of Happiness?,"
Tinbergen Institute Discussion Papers
02-024/3, Tinbergen Institute.
- Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
- Blanchflower, David G. & Oswald, Andrew J., 2001.
"Well-Being Over Time in Britain and the USA,"
The Warwick Economics Research Paper Series (TWERPS)
616, University of Warwick, Department of Economics.
- Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
- Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
- Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
- Pokorny, Kathrin, 2008. "Pay--but do not pay too much: An experimental study on the impact of incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 251-264, May.
- repec:lan:wpaper:3016 is not listed on IDEAS
- C Green & J S Heywood, 2007. "Performance pay, sorting and the dimensions of job satisfaction," Working Papers 584041, Lancaster University Management School, Economics Department.
- Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
- Gardner, Jonathan & Oswald, Andrew J., 2001. "What Has Been Happening to the Quality of Workers’ Lives in Britain?," The Warwick Economics Research Paper Series (TWERPS) 617, University of Warwick, Department of Economics.
- Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10031. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.