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Performance Appraisal and Quits: Does Performance Pay Add Anything?

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  • Heywood, John S.
  • Nießen, Anna

Abstract

Using German survey data, we estimate the determinants of employee quits examining the roles of performance appraisal and performance pay. We show that employees subject to performance appraisals are less likely to quit. Yet, this influence depends upon the financial consequences that flow from the appraisals. If there are no financial consequences or if the consequences are short term such as under piece rates, commissions or bonuses, quits are lower. If there are only long-term consequences such as permanent changes in base pay or promotion, there is no reduction in quits. We explore this difference suggesting that the long-term consequences create rigidity while the procyclical nature of short-run performance pay creates flexibility.

Suggested Citation

  • Heywood, John S. & Nießen, Anna, 2025. "Performance Appraisal and Quits: Does Performance Pay Add Anything?," GLO Discussion Paper Series 1687, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:1687
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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