The Tenuous Relationship between Effort and Performance Pay

Ola Kvaløy and Trond Olsen

No 2012/8, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: When a worker is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the worker's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.

Keywords: Effort; performance pay; incentive contract (search for similar items in EconPapers)
JEL-codes: J30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-06-29
New Economics Papers: this item is included in nep-bec, nep-cta, nep-hrm, nep-lab and nep-lma
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Related works:
Journal Article: The tenuous relationship between effort and performance pay (2015)
Working Paper: The Tenuous Relationship between Effort and Performance Pay (2012)
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