Who Pays for Performance?

36 Pages Posted: 31 May 2006

See all articles by Erling Barth

Erling Barth

Institute for Social Research, Norway; Department of Economics, University of Oslo; IZA Institute of Labor Economics

Bernt Bratsberg

Kansas State University - Department of Economics; University of Oslo - Ragnar Frisch Centre for Economic Research

Torbjörn Haegeland

Statistics Norway; University of Oslo - Ragnar Frisch Centre for Economic Research

Oddbjorn Raaum

University of Oslo - Ragnar Frisch Centre for Economic Research

Date Written: May 2006

Abstract

Using Norwegian establishment surveys from 1997 and 2003, we show that performance-related pay is more prevalent in firms where workers of the main occupation have a high degree of autonomy in how to organize their work. This observation supports an interpretation of incentive pay as motivated by agency problems. Performance-related pay is also more widespread in large firms. Traditionally, wage setting in the Norwegian labor market has been dominated by negotiations between trade unions and employer associations at the central and local levels, with a fixed hourly wage as a predominant element of the wage scheme. Our results show that performance-related pay is less common in highly unionized firms and in firms where wages are determined through centralized bargaining. Nevertheless, the evidence presented in this paper reveals that performance pay is on the rise in Norway, even after accounting for changes in industry structure, bargaining regime, and union density. Finally, we find that the incidence of performance-related pay relates positively to product-market competition and foreign ownership.

Keywords: performance related pay, agency problems, compensation methods

JEL Classification: J33, M52

Suggested Citation

Barth, Erling and Bratsberg, Bernt and Haegeland, Torbjörn and Raaum, Oddbjørn, Who Pays for Performance? (May 2006). IZA Discussion Paper No. 2142, Available at SSRN: https://ssrn.com/abstract=905540 or http://dx.doi.org/10.2139/ssrn.905540

Erling Barth (Contact Author)

Institute for Social Research, Norway ( email )

Munthesgate 31
0260 Oslo
Norway

Department of Economics, University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

IZA Institute of Labor Economics

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

Bernt Bratsberg

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States

University of Oslo - Ragnar Frisch Centre for Economic Research

Gaustadalleen 21
N-0349 Oslo
Norway

Torbjörn Haegeland

Statistics Norway ( email )

N-0033 Oslo
Norway

University of Oslo - Ragnar Frisch Centre for Economic Research

Gaustadalleen 21
N-0317 Oslo
Norway

Oddbjørn Raaum

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

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