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

David McCausland, Konstantinos Pouliakas and Ioannis Theodossiou

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: performance pay; job satisfaction; selectivity bias; endogeneity; crowding-out; intrinsic motivation; UK (search for similar items in EconPapers)
JEL-codes: J28 J33 (search for similar items in EconPapers)
Date: 2005-05-22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Published in International Journal of Manpower 26.7(2005): pp. 636-659

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Working Paper: Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction (2005)
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