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Matchmaking: the Influence of Monitoring Environments on the Effectiveness of Performance Pay Systems

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  • Richard Belfield
  • David Marsden

Abstract

This study uses cross-section and panel data from the 1998 Workplace Employee Relations Survey to explore contextual influences on the relationship between performance-related pay (PRP) and organizational performance. While it finds strong evidence that the use of PRP can enhance performance outcomes, it also determines that this relationship is qualified by the structure of workplace monitoring environments. In addition, it presents evidence that managers learn about optimum combinations of pay system and monitoring environment through a process of experimentation. Lastly, although there exists a robust positive association in these data between use of PRP and pay inequality, it appears that these higher levels of inequality carry no performance penalty.

Suggested Citation

  • Richard Belfield & David Marsden, 2002. "Matchmaking: the Influence of Monitoring Environments on the Effectiveness of Performance Pay Systems," CEP Discussion Papers dp0543, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0543
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    References listed on IDEAS

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    More about this item

    Keywords

    performance-related pay; incentives; performance measurement; organizational commitment;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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