Personnel economics: managing human resources through performance-related pay

Victoria Wass

Chapter 10 in Elgar Introduction to Theories of Human Resources and Employment Relations, 2019, pp 139-154 from Edward Elgar Publishing

Abstract: Personnel economics is the application of economic theories and mathematical approaches to the management of people at work. Like its disciplinary grandparent, it embodies a particular way of understanding and explaining individual and social behaviour, one that is based on modelling how economic agents respond to changes in the external environment where this changes the incentives that agents face. Using the example of performance-related pay, this chapter guides the reader through the distinctive approach of personnel economics, its foundations, its insights and its contribution to HRM. Basic theory and a simple model are used to show what performance-related pay might look like and why and when it might be effective. Performance-related pay has been criticized in the literature as much as it has been promoted. Personnel economics itself offers a sophisticated and comprehensive analysis of where and why performance-related pay might fail to work. However, incentives are central to personnel economics and, if pay is not a motivator of effort, then there is little utility for a theory which assumes that it is.

Keywords: Business and Management; Economics and Finance; Social Policy and Sociology (search for similar items in EconPapers)
Date: 2019
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