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Examining the Tradeoff between Fixed Pay and Performance-related Pay: A Choice Experiment Approach

Author

Listed:
  • Junyi Shen

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Kazuhito Ogawa

    (Faculty of Sociology, Kansai University)

  • Hiromasa Takahashi

    (Faculty of International Studies, Hiroshima City University)

Abstract

Previous investigations on performance-related pay have mainly analyzed its relationships with earnings, productivity, and job satisfaction. Less attention has been devoted to the investigations of individuals’ preferences for the performance-related payment system per se and consequently the tradeoff between fixed pay and performance-related pay. In this paper, we first use a choice experiment approach to investigate the tradeoff between fixed pay and performance-related pay, and then link the tradeoff for each individual with their risk preferences. Our main results indicate that individuals’ preferences for the payment system per se and the magnitude of tradeoffs between fixed pay and performance pay are different according to their risk preferences.

Suggested Citation

  • Junyi Shen & Kazuhito Ogawa & Hiromasa Takahashi, 2014. "Examining the Tradeoff between Fixed Pay and Performance-related Pay: A Choice Experiment Approach," Discussion Paper Series DP2014-01, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2014-01
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2014-01.pdf
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    References listed on IDEAS

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    1. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
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    6. Bjorner, Thomas Bue & Hansen, L.G.Lars Garn & Russell, Clifford S., 2004. "Environmental labeling and consumers' choice--an empirical analysis of the effect of the Nordic Swan," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 411-434, May.
    7. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-463, July.
    8. Junyi Shen, 2005. "A Review of Stated Choice Method," Discussion Papers in Economics and Business 05-27, Osaka University, Graduate School of Economics.
    9. Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, number 9780521788304, September.
    10. Colin Green & John S. Heywood, 2008. "Does Performance Pay Increase Job Satisfaction?," Economica, London School of Economics and Political Science, vol. 75(300), pages 710-728, November.
    11. Peter Boxall & Wiktor Adamowicz, 2002. "Understanding Heterogeneous Preferences in Random Utility Models: A Latent Class Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(4), pages 421-446, December.
    12. Edward Morey & Jennifer Thacher & William Breffle, 2006. "Using Angler Characteristics and Attitudinal Data to Identify Environmental Preference Classes: A Latent-Class Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(1), pages 91-115, May.
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    Cited by:

    1. Sergey Shishkin & Aleksandr Temnitsky, 2017. "From Salary to the Performance-Based Remuneration of Russian Physicians: How Motivation at Work is Changing," HSE Working papers WP BRP 08/PSP/2017, National Research University Higher School of Economics.
    2. Weiyi Zhang & Hiromasa Takahashi & Junyi Shen, 2016. "Does Physical Exercise Affect Tradeoffs between Fixed Pay and Performance-related Pay for Individuals?," Discussion Paper Series DP2016-13, Research Institute for Economics & Business Administration, Kobe University.

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    More about this item

    Keywords

    Fixed pay; Performance-related pay; Choice experiment; Risk preference;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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