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

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  • Alex Bryson
  • John Forth
  • Lucy Stokes

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

  • Alex Bryson & John Forth & Lucy Stokes, 2014. "The Performance Pay Premium: How Big Is It and Does It Affect Wage Dispersion?," National Institute of Economic and Social Research (NIESR) Discussion Papers 433, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:433
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    References listed on IDEAS

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    1. Rosen, S., 1990. "Contracts and Market for Executives," University of Chicago - Economics Research Center 90-12, Chicago - Economics Research Center.
    2. Isik, Murat & Khanna, Madhu, 2002. "Uncertainty and spatial variability: incentives for variable rate technology adoption in agriculture," Risk, Decision and Policy, Cambridge University Press, vol. 7(3), pages 249-265, December.
    3. 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.
    4. Bruce Shearer, 2004. "Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 513-534.
    5. Seiler, Eric, 1984. "Piece Rate vs. Time Rate: The Effect of Incentives on Earnings," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 363-376, August.
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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

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

    JEL classification:

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

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