The Performance Pay Premium: How Big is it and Does it Affect Wage Dispersion?

53 Pages Posted: 2 Aug 2014

See all articles by Alex Bryson

Alex Bryson

UCL ; National Institute of Economic and Social Research (NIESR)

John Forth

National Institute of Economic and Social Research (NIESR)

Lucy Stokes

National Institute of Economic and Social Research (NIESR)

Abstract

Using nationally representative linked employer-employee data we find one-quarter of employees in Britain are paid for performance. The log hourly wage gap between performance pay and fixed pay employees is .36 points. This falls to .15 log points after controlling for observable demographic, job and workplace characteristics. It falls still further to .10 log points when comparing "like" employees in the same workplace, indicating that performance pay contracts are used in higher paying workplaces. The premium rises markedly as one moves up the wage distribution: it is seven times higher at the 90th percentile than it is at the 10th percentile in the wage distribution (.42 log points compared to .06 log points).

Keywords: wages, wage inequality, performance pay, bonuses

JEL Classification: J33

Suggested Citation

Bryson, Alex and Forth, John and Stokes, Lucy, The Performance Pay Premium: How Big is it and Does it Affect Wage Dispersion?. IZA Discussion Paper No. 8360, Available at SSRN: https://ssrn.com/abstract=2475328

Alex Bryson (Contact Author)

UCL ( email )

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HOME PAGE: http://https://iris.ucl.ac.uk/iris/browse/profile?upi=ABRYS65

National Institute of Economic and Social Research (NIESR) ( email )

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Smith Square
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United Kingdom

HOME PAGE: http://www.niesr.ac.uk/staff/staffdetail.php?StaffID=307

John Forth

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

Lucy Stokes

National Institute of Economic and Social Research (NIESR)

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