Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-Sharing Incentives on the Job Satisfaction of British Employees

University of Aberdeen Business School Working Paper No. 2007-08

Posted: 10 Jan 2008

See all articles by Konstantinos Pouliakas

Konstantinos Pouliakas

University of Aberdeen - Business School; Cedefop; IZA Institute of Labor Economics

Ioannis Theodossiou

University of Aberdeen - Business School

Date Written: February 2007

Abstract

The increasing interest in incentive pay schemes in recent years has raised concerns regarding their potential damaging effect on intrinsic job satisfaction, or the security of employment. This study explores the impact of both individual and gain-sharing incentives on the overall job satisfaction of workers in the UK, as well as their satisfaction with various facets of jobs, namely total pay, job security, and the actual work itself. Using data from six waves (1998-2003) of the British Household Panel Survey (BHPS), and after correcting for the sorting problem that arises, no significant difference in overall job utility is found between those receiving performance-related pay (PRP) and those on other methods of compensation. In addition, non-economic arguments that PRP crowds-out the intrinsic satisfaction of jobs are also not supported, as are popular concerns regarding the adverse impact of PRP schemes on job security. An important asymmetry in the manner in which individual and gain-sharing incentives affect the utility of employees is nonetheless unearthed, as the latter are consistently found to have a positive effect on employee well-being.

Keywords: performance-related pay, job security, intrinsic job satisfaction, sorting

JEL Classification: J28, J33

Suggested Citation

Pouliakas, Konstantinos and Pouliakas, Konstantinos and Theodossiou, Ioannis, Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-Sharing Incentives on the Job Satisfaction of British Employees (February 2007). University of Aberdeen Business School Working Paper No. 2007-08, Available at SSRN: https://ssrn.com/abstract=1082225

Konstantinos Pouliakas (Contact Author)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Cedefop ( email )

PO Box 22427
Finikas (Thessaloniki), 55102
Greece

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Ioannis Theodossiou

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

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