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

By W. David McCausland, Kostas Pouliakas and Ioannis Theodossiou

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.European Commissio

Topics: performance-related pay, job satisfaction, endogeneity, self-selection
Year: 2007
OAI identifier: oai:aura.abdn.ac.uk:2164/108
Journal:

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