The Paradox of Performance Related Pay Systems: Why Do We Keep Adopting Them in the Face of Evidence that they Fail to Motivate?

David Marsden

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper considers one of the paradoxes of incentive pay used in Britain's public services,namely that despite much evidence that it does not motivate employees, it continues to bewidely used. It is argued that behind this evidence, there are significant examples in which itsuse has been associated with improved performance. A good part of this is to be explained bythe way performance pay links pay and appraisal, and the pressure this puts on line managersto set clearer goals for their staff. There is also some evidence that the goal setting is theoutcome of a form of integrative, or positive sum, negotiation between individual employeesand their managers, and that it is not just 'top down'.

Keywords: pay for performance; public sector pay (search for similar items in EconPapers)
JEL-codes: J33 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-lab
Date: 2009-08
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0946

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