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Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction

  • McCausland, David
  • Pouliakas, Konstantinos
  • Theodossiou, Ioannis

Using an econometric procedure that corrects for both self-selection of individuals into their preferred compensation scheme and wage endogeneity, this study investigates whether significant differences exist in the job satisfaction of individuals receiving performance-related pay (PRP) compared to those on alternative compensation plans. Using data from four waves of the British Household Panel Survey (BHPS), it is found that PRP exerts a positive effect on the mean job satisfaction of (very) high-paid workers only. A potential explanation for this pattern could be that for lower-paid employees PRP is perceived to be controlling, whereas higher-paid workers derive a utility benefit from what they regard as supportive reward schemes. Using PRP as an incentive device in the UK could therefore be counterproductive in the long run for certain low-paid occupations.

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File URL: http://mpra.ub.uni-muenchen.de/14243/1/MPRA_paper_14243.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14243.

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Date of creation: 22 May 2005
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Publication status: Published in International Journal of Manpower 26.7(2005): pp. 636-659
Handle: RePEc:pra:mprapa:14243
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