Performance Appraisal and Quits: Does Performance Pay Add Anything?

John Heywood and Anna Nießen

No 1687, GLO Discussion Paper Series from Global Labor Organization (GLO)

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.

Keywords: Performance Appraisal; Performance Pay; Voluntary Job Quits; German Socio-Economic Panel (search for similar items in EconPapers)
JEL-codes: C23 M50 M52 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-hrm, nep-inv and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:1687

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