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Paying for Performance: Incentive Pay Schemes and Employees’ Financial Participation

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  • Freeman, Richard Barry
  • Bryson, Alex
  • Lucifora, Claudio
  • Pellizari, Michele
  • Perotin, Virginie

Abstract

We present new comparable data on the incidence of performance pay schemes in Europe and the USA. We find that the percentage of employees exposed to incentive pay schemes ranges from around 10-15 percent in some European countries to over 40 percent in Scandinavian countries and the US. Individual pay and profit/gain sharing schemes are widely diffused, whereas share ownership schemes are much less common, particularly in Europe. We document a number of empirical regularities. Incentive pay is less common in countries with a higher share of small firms. Higher product and labour market regulation are associated with lower use of incentive pay. Capital market development is a necessary requirement for a wider diffusion of incentive pay, particularly sharing and ownership schemes. When we control for a large set of individual characteristics and company attributes, we find that the probability that a worker is covered by an incentive scheme is higher in large firms and in high-skilled occupations, while it is much lower for females.

Suggested Citation

  • Freeman, Richard Barry & Bryson, Alex & Lucifora, Claudio & Pellizari, Michele & Perotin, Virginie, 2012. "Paying for Performance: Incentive Pay Schemes and Employees’ Financial Participation," Scholarly Articles 37146963, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:37146963
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    Cited by:

    1. Ferey, Antoine & Haufler, Andreas & Perroni, Carlo, 2023. "Incentives, globalization, and redistribution," Journal of Public Economics, Elsevier, vol. 224(C).
    2. Karsten Albæk & Tine Jeppesen & Bjørn Christian Arleth Viinholt, 2022. "PROTOCOL: Performance pay and employee health: A systematic review," Campbell Systematic Reviews, John Wiley & Sons, vol. 18(3), September.
    3. Cerrone Claudia & Manna Ester, 2018. "Pay for Performance with Motivated Employees," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(1), pages 1-8, January.
    4. Brandts, Jordi & Corgnet, Brice & Hernán-González, Roberto & Ortiz, José Mª & Solà, Carles, 2021. "Watching or not watching? Access to information and the incentive effects of firing threats," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 672-685.
    5. Brice Corgnet & Roberto Hernán González, 2023. "You Will not Regret it: On the Practice of Randomized Incentives," Working Papers 2314, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    6. Koch, Simon & Weinschenk, Philipp, 2021. "Contract design with socially attentive preferences," Games and Economic Behavior, Elsevier, vol. 130(C), pages 591-601.

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