Does Performance Pay Increase Job Satisfaction?

Published by Economica.

Rather than just a way of squeezing more productivity out of employees, performance pay can make people happier at work, says new research from Lancaster University Management School.

Based on data from 12,000 UK employees, Colin Greenís research is the first to look at the impact of performance pay not on productivity but on specific elements of satisfaction, attitudes to salary, hours worked and job security, as well as satisfaction with work overall.

In his paper, ëDoes Performance Pay Increase Job Satisfaction?í, he found in particular that people with the opportunity of receiving profit share and bonuses had higher job satisfaction, were happier about their working hours and felt they had more job security.

There were also interesting differences in the experiences of men and women, with performance pay making men more satisfied with every aspect of their working life overall, whereas women were only more satisfied with pay, not their hours worked or with levels of job security.

Colin Green said: ìThe use of performance pay schemes by employers has been shown to increase worker productivity, effort and increase worker earnings. But what does it mean for worker satisfaction with the job? While increased earnings in themselves will increase worker satisfaction, other aspects of performance pay schemes may have less beneficial effects on job satisfaction. Pay schemes based on performance may introduce large variations in earnings, while the performance monitoring associated with pay schemes may result in increased effort that workers dislike.

ìHowever, our research has shown that performance pay, as well as improving levels of satisfaction, can also improve attitudes towards job security. Performance related pay would be expected to have a negative effect on job security, in so far as it is indicative of a culture of monitoring of work effort. But linking pay to productivity may also increase job security as wages fluctuate positively with the output of the firm, reducing the need for firms to lay-off workers in periods of weak product demand. It may also attract workers who are willing to tolerate risk and so are more likely to be satisfied with their degree of security.î

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Published by Economica.