IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/18238.html
   My bibliography  Save this paper

Performance Pay as an Incentive for Lower Absence Rates in Britain

Author

Listed:
  • Pouliakas, Konstantinos
  • Theodoropoulos, Nikolaos

Abstract

Using two cross-sections of a representative dataset of British establishments, the effect of various forms of incentive pay (e.g. performance-related pay (PRP), profit-sharing, share ownership, cash bonuses) on the absence rates of firms is investigated. Incentives that are tightly linked to individual or group merit are found to be significantly related to lower absenteeism. Important disparities in the effect of PRP on absenteeism are detected, which depend on the extent of monitoring, private-public status, teamwork, and other organizational changes. The findings are robust to the potential endogenous relation between monitoring, PRP and absenteeism, and have important implications for the design of optimal compensation policies by firms.

Suggested Citation

  • Pouliakas, Konstantinos & Theodoropoulos, Nikolaos, 2009. "Performance Pay as an Incentive for Lower Absence Rates in Britain," MPRA Paper 18238, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18238
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/18238/1/MPRA_paper_18238.pdf
    File Function: original version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/18820/4/MPRA_paper_18820.pdf
    File Function: revised version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gielen, Anne & Kerkhofs, Marcel J M & van Ours, Jan C, 2006. "Performance Related Pay and Labour Productivity," CEPR Discussion Papers 5455, C.E.P.R. Discussion Papers.
    2. Engellandt, Axel & Riphahn, Regina T., 2004. "Incentive Effects of Bonus Payments: Evidence from an International Company," IZA Discussion Papers 1229, Institute for the Study of Labor (IZA).
    3. 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 0505019, University Library of Munich, Germany.
    4. Johansson, Per & Palme, Marten, 1996. "Do economic incentives affect work absence? Empirical evidence using Swedish micro data," Journal of Public Economics, Elsevier, vol. 59(2), pages 195-218, February.
    5. Paul Fenn & Simon Ashby, 2004. "Workplace Risk, Establishment Size and Union Density," British Journal of Industrial Relations, London School of Economics, vol. 42(3), pages 461-480, September.
    6. Charles Brown, 1992. "Wage Levels and Method of Pay," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 366-375, Autumn.
    7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    8. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
    9. Barmby, T A & Orme, C D & Treble, John G, 1991. "Worker Absenteeism: An Analysis Using Microdata," Economic Journal, Royal Economic Society, vol. 101(405), pages 214-229, March.
    10. Barmby, Tim & Orme, Chris & Treble, John, 1995. "Worker absence histories: a panel data study," Labour Economics, Elsevier, vol. 2(1), pages 53-65, March.
    11. Engellandt, Axel & Riphahn, Regina T., 2005. "Temporary contracts and employee effort," Labour Economics, Elsevier, vol. 12(3), pages 281-299, June.
    12. Tim A. Barmby & Marco G. Ercolani & John G. Treble, 2002. "Sickness Absence: An International Comparison," Economic Journal, Royal Economic Society, vol. 112(480), pages 315-331, June.
    13. 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.
    14. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
    15. Per Engström & Bertil Holmlund, 2007. "Worker Absenteeism in Search Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 439-467, September.
    16. Arai, Mahmood & Thoursie, Peter Skogman, 2005. "Incentives and selection in cyclical absenteeism," Labour Economics, Elsevier, vol. 12(2), pages 269-280, April.
    17. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
    18. Lusine Lusinyan & Leo Bonato, 2007. "Work Absence in Europe," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 475-538, July.
    19. repec:lan:wpaper:3173 is not listed on IDEAS
    20. Cornelissen, Thomas & Heywood, John S. & Jirjahn, Uwe, 2011. "Performance pay, risk attitudes and job satisfaction," Labour Economics, Elsevier, vol. 18(2), pages 229-239, April.
    21. Drago, Robert & Garvey, Gerald T, 1998. "Incentives for Helping on the Job: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 1-25, January.
    22. repec:lan:wpaper:3020 is not listed on IDEAS
    23. Goldin, Claudia, 1986. "Monitoring Costs and Occupational Segregation by Sex: A Historical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 1-27, January.
    24. Bauer, Thomas K., 2004. "High Performance Workplace Practices and Job Satisfaction: Evidence from Europe," IZA Discussion Papers 1265, Institute for the Study of Labor (IZA).
    25. Vincenzo Scoppa, 2010. "Worker absenteeism and incentives: evidence from Italy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 503-515, December.
    26. John S. Heywood & Uwe Jirjahn, 2004. "Teams, Teamwork and Absence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 765-782, December.
    27. Heywood, John S. & Jirjahn, Uwe & Wei, Xiangdong, 2008. "Teamwork, monitoring and absence," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 676-690, December.
    28. Stephen L. Jacobson, 1989. "The Effects of Pay Incentives on Teacher Absenteeism," Journal of Human Resources, University of Wisconsin Press, vol. 24(2), pages 280-286.
    29. Colin Green & John S. Heywood, 2008. "Does Performance Pay Increase Job Satisfaction?," Economica, London School of Economics and Political Science, vol. 75(300), pages 710-728, November.
    30. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    31. Ose, Solveig Osborg, 2005. "Working conditions, compensation and absenteeism," Journal of Health Economics, Elsevier, vol. 24(1), pages 161-188, January.
    32. repec:lan:wpaper:3018 is not listed on IDEAS
    33. Magnus Henrekson & Mats Persson, 2004. "The Effects on Sick Leave of Changes in the Sickness Insurance System," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 87-114, January.
    34. Barmby, Tim & Stephan, Gesine, 2000. "Worker Absenteeism: Why Firm Size May Matter," Manchester School, University of Manchester, vol. 68(5), pages 568-577, September.
    35. Sarah Brown & John G. Sessions, 2003. "Attitudes, Expectations and Sharing," LABOUR, CEIS, vol. 17(4), pages 543-569, December.
    36. Brown, Sarah & Sessions, John G, 1996. " The Economics of Absence: Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 10(1), pages 23-53, March.
    37. 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.
    38. Nicholas Wilson & Michael J. Peel, 1991. "The Impact on Absenteeism and Quits of Profit-Sharing and other Forms of Employee Participation," ILR Review, Cornell University, ILR School, vol. 44(3), pages 454-468, April.
    39. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    40. Hassink, Wolter & Koning, Pierre, 2005. "Do Financial Bonuses to Employees Reduce Their Absenteeism? Outcome of a Lottery," IZA Discussion Papers 1644, Institute for the Study of Labor (IZA).
    41. 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.
    42. Georges Dionne & Benoit Dostie, 2007. "New Evidence on the Determinants of Absenteeism Using Linked Employer-Employee Data," ILR Review, Cornell University, ILR School, vol. 61(1), pages 108-120, October.
    43. repec:lan:wpaper:2926 is not listed on IDEAS
    44. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    45. Jacques Raynauld, 2005. "New Evidence on the Determinants of Absenteeism Using Linked Employer-Employee Data," Cahiers de recherche 05-06, HEC Montréal, Institut d'économie appliquée.
    46. Bradley, Steve & Green, Colin & Leeves, Gareth, 2007. "Worker absence and shirking: Evidence from matched teacher-school data," Labour Economics, Elsevier, vol. 14(3), pages 319-334, June.
    47. Barmby, Tim & Sessions, John G & Treble, John G, 1994. " Absenteeism, Efficiency Wages and Shirking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(4), pages 561-566.
    48. Leigh, J. Paul, 1985. "The effects of unemployment and the business cycle on absenteeism," Journal of Economics and Business, Elsevier, vol. 37(2), pages 159-170, May.
    49. Barmby, Tim, 2002. "Worker absenteeism: a discrete hazard model with bivariate heterogeneity," Labour Economics, Elsevier, vol. 9(4), pages 469-476, September.
    50. Allen, Steven G, 1981. "An Empirical Model of Work Attendance," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 77-87, February.
    51. Melvyn Coles & Joseph Lanfranchi & Ali Skalli & John Treble, 2007. "Pay, Technology, And The Cost Of Worker Absence," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 268-285, April.
    52. Mohammed Chaudhury & Ignace Ng, 1992. "Absenteeism Predictors: Least Squares, Rank Regression, and Model Selection Results," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 615-635, August.
    53. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Konstantinos, Pouliakas & Ioannis, Theodossiou, 2010. "An Inquiry Into the Theory, Causes and Consequences of Monitoring Indicators of Health and Safety At Work," MPRA Paper 20336, University Library of Munich, Germany.

    More about this item

    Keywords

    performance-related pay; incentives; absenteeism;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:18238. 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). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.