PERFORMANCE PAY
New research says performance pay increases job satisfaction
The debate in reward circles over the effectiveness of performance pay has gone on for many years, but still no conclusive evidence exists that is universally accepted. To add further to the discussion, a recent academic report comes down on the side in favour of the performance pay, concluding that it promotes job satisfaction.
The paper, from US academic John Heywood of the University of Wisconsin-Milwaukee and the UK’s Colin Green from Lancaster University, examines the effect of performance pay on several types of job satisfaction, including those related to pay, job security, hours and the work itself.
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Using a statistical analysis of data from the British Household Panel Survey (BHPS) it concludes that performance-related pay is associated with increased overall satisfaction, satisfaction with pay, satisfaction with job security and satisfaction with hours.
The only downside was that is appeared negatively associated with satisfaction with the work itself but after making adjustments to the model used, the authors report this negative effect disappeared as well.
Statistical study
The research uses data drawn from the BHPS for the years 1998 to 2004 and excludes the self-employed and anyone under 20 or over 65 years old. This produced a sample of nearly 12,000 individuals and by examining answers from questions posed about various aspects of job satisfaction and payment systems, the analysis could cross reference to see if any relationships existed.
The payment systems surveyed included Christmas or quarterly bonuses, profit-related pay, profit-sharing bonuses and or any commissions.
Study takes no account of proportion of pay at risk
One of the weaknesses of the research, a limitation acknowledged by the authors themselves, was that the analysis took no account of the proportion of earnings attributable to different schemes, simply concentrating on whether each type of performance-based reward was in place or not.
While admitting this fact, the authors did not explain in any more detail the implications of such an omission, simply saying that this is a limitation shared with most other academic studies looking into the area.
A final word
Despite the overall findings, the authors added that: "General tendencies do not mean that the job satisfaction of all workers will increase should their firm adopt performance pay. By its nature performance pay is suited for some types of production technologies and not suited for others.” But they add that: “Despite these caveats, the many suggestions that worker welfare will be reduced by performance pay received no support in our enquiry.”
Want to know more?
The full article is available in the journal Economica, available at www.blackwellpublishing.com. Alternatively tel: 01865 776868. Price of subscription varies according to organisational type/student status.