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The Performance Pay Premium: How Big Is It and Does It Affect Wage Dispersion?

Author

Listed:
  • Bryson, Alex

    (University College London)

  • Forth, John

    (City University London)

  • Stokes, Lucy

    (Competition and Markets Authority)

Abstract

Using nationally representative linked employer-employee data we find one-quarter of employees in Britain are paid for performance. The log hourly wage gap between performance pay and fixed pay employees is .36 points. This falls to .15 log points after controlling for observable demographic, job and workplace characteristics. It falls still further to .10 log points when comparing "like" employees in the same workplace, indicating that performance pay contracts are used in higher paying workplaces. The premium rises markedly as one moves up the wage distribution: it is seven times higher at the 90th percentile than it is at the 10th percentile in the wage distribution (.42 log points compared to .06 log points).

Suggested Citation

  • Bryson, Alex & Forth, John & Stokes, Lucy, 2014. "The Performance Pay Premium: How Big Is It and Does It Affect Wage Dispersion?," IZA Discussion Papers 8360, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8360
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    References listed on IDEAS

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    2. K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.
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    5. Rosen, S., 1990. "Contracts and Market for Executives," University of Chicago - Economics Research Center 90-12, Chicago - Economics Research Center.
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    Cited by:

    1. Bryan, Mark & Bryson, Alex, 2016. "Has performance pay increased wage inequality in Britain?," Labour Economics, Elsevier, vol. 41(C), pages 149-161.
    2. Andrew Pendleton & Alex Bryson & Howard Gospel, 2017. "Ownership and Pay in Britain," British Journal of Industrial Relations, London School of Economics, vol. 55(4), pages 688-715, December.
    3. Mark Williams & Ying Zhou & Min Zou, 2020. "The Rise in Pay for Performance Among Higher Managerial and Professional Occupations in Britain: Eroding or Enhancing the Service Relationship?," Work, Employment & Society, British Sociological Association, vol. 34(4), pages 605-625, August.

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    More about this item

    Keywords

    bonuses; performance pay; wage inequality; wages;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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