The Effect of Variable Pay Schemes on Workplace Absenteeism

41 Pages Posted: 4 Sep 2011

See all articles by Konstantinos Pouliakas

Konstantinos Pouliakas

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

Nikolaos Theodoropoulos

University of Cyprus


We estimate the effect of variable pay schemes on workplace absenteeism using two cross sections of British establishments. Private sector establishments that explicitly link pay with individual performance are found to have significantly lower absence rates. This effect is stronger for establishments that offer variable pay schemes to a greater share of their non-managerial workforce. Matched employer-employee data suggest that the effect is robust to a number of sensitivity tests. We also find that firms that tie a greater proportion of employees’ earnings to variable pay schemes are also found to experience lower absence rates. Further, quintile regression results suggest that variable pay schemes have a stronger effect on establishments with an absence rate that is higher than an average or “sustainable” level. Finally, panel data suggest that a feedback mechanism is present, whereby high absenteeism in the past is related to a greater future incidence of individual variable pay schemes, which, in turn, is correlated with lower absence rates.

Keywords: performance-related pay, absenteeism, incentives, Britain

JEL Classification: J22, J33, C21

Suggested Citation

Pouliakas, Konstantinos and Pouliakas, Konstantinos and Theodoropoulos, Nikolaos, The Effect of Variable Pay Schemes on Workplace Absenteeism. IZA Discussion Paper No. 5941, Available at SSRN:

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

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072

Nikolaos Theodoropoulos

University of Cyprus ( email )

CY-1678 Nicosia
Nicosia, Nicosia P.O. Box 2

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