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

  • W.D. McCausland

    (University of Aberdeen)

  • K. Pouliakas

    (University of Aberdeen)

  • I. Theodossiou

    (University of Aberdeen)

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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Paper provided by EconWPA in its series Labor and Demography with number 0505019.

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Length: 41 pages
Date of creation: 24 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0505019
Note: Type of Document - pdf; pages: 41
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