Skip to main content
Article thumbnail
Location of Repository

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


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:

Suggested articles


  1. (2002). A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments’, doi
  2. (1996). Are Overpaid Workers Really Unhappy? doi
  3. (1999). Are wages habit-forming? Evidence from micro data’, doi
  4. (1997). Back to Bentham? Explorations of Experienced Utility’, doi
  5. (2004). Confronting Objections to Performance Pay: An Analysis of the Incentives-Job Satisfaction Relationship After Controlling for Endogeneity’, doi
  6. (1999). Earnings, Productivity, and Performance-Related Pay’, doi
  7. (2002). Econometric Analysis of Cross Section and Panel Data, doi
  8. (2002). Estimates of the effects of wages on job satisfaction’, Discussion Paper, Centre for Economic Performance,
  9. (1999). Executive Compensation’ doi
  10. (1992). Incentive Contracts and Performance Measurement’, doi
  11. (2001). Income and Happiness: towards a unified theory’, doi
  12. (1997). Instrumental Variables Regression with doi
  13. (2003). Intrinsic and Extrinsic Motivation’, doi
  14. (2003). Intrinsic and Extrinsic Work Orientations as Moderators of the Effect of Annual Income on Subjective Well-Being: A Longitudinal Study’, doi
  15. (1997). Intrinsic Motivation and Extrinsic Incentives’, doi
  16. (1980). Intrinsic Motivation and Self-Determination in Human Behaviour, doi
  17. (1997). Job Satisfaction and Gender: Why are women so happy at work?’, doi
  18. (1997). Job Satisfaction and Target Earnings’, doi
  19. (1978). Job Satisfaction as an Economic Variable’, doi
  20. (2001). Measuring the Quality of Jobs: Promotion Prospects, Low pay and Job Satisfaction’, LoWER working paper, No 7, April,
  21. (1997). Methods of Pay and Earnings: A Longitudinal Analysis’, doi
  22. (1986). Monitoring Costs and Occupational Segregation by Sex’, doi
  23. (1979). Moral hazard and observability’, doi
  24. (1992). Motivation and Performance Related Pay in the Public Sector: A Case Study of the Inland Revenue’, Discussion Paper no. 75, Centre for Economic Performance/
  25. (2001). Motivation Crowding Theory: A Survey of Empirical Evidence’, doi
  26. (1991). Multitask principal-agent analyses: incentive contracts, asset ownership, and job design’, doi
  27. (1997). Not just for the Money: An Economic Theory of Personal Motivation, doi
  28. (1991). Ordinal and Cardinal Utility: an integration of the two dimensions of the welfare concept’, doi
  29. (2000). Performance Pay and Productivity’, doi
  30. (1984). Piece Rate vs. Time-Rate: The Effect of Incentives on Earnings’, doi
  31. (1995). Problems with Instrumental Variables Estimation When the Correlation Between the Instruments and the Endogenous Variable is Weak’, doi
  32. (1983). Psychology of Employee Lateness, Absence and Turnover: Methodology, a Critique and an Empirical Study’, doi
  33. (1993). Punished By Rewards: The Trouble with Gold Stars, Incentive Plans, A's, Praise, and Other Bribes,
  34. (1986). Salaries and Piece Rates’, doi
  35. (1979). Sample Selection Bias as a Specification Error’, doi
  36. (1996). Satisfaction and Comparison Income’, doi
  37. (1967). The effect of performance on job satisfaction’, doi
  38. (1971). The Effects of Externally Mediated Rewards on Intrinsic Motivation’, doi
  39. (1998). The Effects of Low-Pay and Unemployment on Psychological Well-Being: A Logistic Regression Approach’, doi
  40. (2004). The Estimation of Job Satisfaction with Endogenous Income’,
  41. (2003). The impact of wage increases on Job Satisfaction: Empirical Evidence and Theoretical Implications’, IZA Discussion Paper, doi
  42. (2001). The Job Satisfaction-Job Performance Relationship: A Qualitative and Quantitative Review’, doi
  43. (1976). The optimal structure of incentives and authority within an organization’, doi
  44. (1999). The Provision of Incentives in Firms’, doi
  45. (1973). Undermining Children’s Intrinsic Interest with Extrinsic Reward’, doi
  46. (1978). Unionism and Wage Rates: A Simultaneous Equation Model with Qualitative and Limited Dependent Variables’, doi
  47. (1992). Wage Levels and Methods of Pay’, The Rand doi
  48. (1999). Well-Being, insecurity and the decline of American job satisfaction’,
  49. (2001). What has been Happening to the Quality of Workers’ Lives

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.