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Performance-related pay and productivity

Author

Listed:
  • Claudio Lucifora

    (Università Cattolica, Italy, and IZA, Germany)

  • Federica Origo

    (Università degli Studi di Bergamo, Italy, and IZA, Germany)

Abstract

A growing number of firms offer compensation packages that link pay to performance. The aim is to motivate workers to be more efficient while also increasing their attachment to the company, thereby reducing turnover and absenteeism. The effects of performance-related pay on productivity depend on the scheme type and design, with individual incentives showing the largest effect. Governments often offer tax breaks and financial incentives to promote performance-related pay, though their desirability has been questioned due to large deadweight losses involved. The diffusion of remote work will increase the relevance of performance-related pay.

Suggested Citation

  • Claudio Lucifora & Federica Origo, 2022. "Performance-related pay and productivity," IZA World of Labor, Institute of Labor Economics (IZA), pages 152-152, January.
    • Handle: RePEc:iza:izawol:journl:2022:n:152
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    More about this item

    Keywords

    performance-related pay; productivity; pay incentives; financial participation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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