Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction

University of Aberdeen Business School Working Paper No. 2007-06

50 Pages Posted: 5 Nov 2006 Last revised: 11 Mar 2016

See all articles by W. David McCausland

W. David McCausland

University of Aberdeen - Business School

Konstantinos Pouliakas

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

Ioannis Theodossiou

University of Aberdeen - Business School

Date Written: January 1, 2007

Abstract

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.

Keywords: performance-related pay, job satisfaction, self-selection, endogeneity

JEL Classification: J28, J33

Suggested Citation

McCausland, W. David and Pouliakas, Konstantinos and Pouliakas, Konstantinos and Theodossiou, Ioannis, Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction (January 1, 2007). University of Aberdeen Business School Working Paper No. 2007-06, Available at SSRN: https://ssrn.com/abstract=942288 or http://dx.doi.org/10.2139/ssrn.942288

W. David McCausland (Contact Author)

University of Aberdeen - Business School ( email )

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

Konstantinos Pouliakas

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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