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Who pays for performance?

Erling Barth (Institute for Social Research, University of Oslo, Oslo, Norway and IZA, Bonn, Germany)
Bernt Bratsberg (Frisch Centre for Economic Research, University of Oslo, Oslo, Norway and Kansas State University, Manhattan, Kansas, USA)
Torbjørn Hægeland (Statistics Norway and Frisch Centre for Economic Research, University of Oslo, Oslo, Norway)
Oddbjørn Raaum (Frisch Centre for Economic Research, University of Oslo, Oslo, Norway)

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 21 March 2008

Abstract

Purpose

The purpose of this paper is to improve our understanding of why some firms tie compensation to worker performance as well as the variation in type of performance pay system across firms.

Design/methodology/approach

The study first presents a theoretical framework that motivates n empirical study of performance‐related pay. The data are based on Norwegian establishment surveys from 1997 and 2003. The empirical analysis addresses determinants of adoption of performance pay systems.

Findings

Performance‐related pay is more prevalent in firms where workers of the main occupation have a high degree of autonomy in how to organise their work. Performance pay is also more widespread in large firms, but is less common in highly unionised firms and in firms where wages are determined through centralised bargaining. Results show that performance pay is on the rise in Norway, even after accounting for changes in industry structure, bargaining regime, and union density. Finally, it is found that the incidence of performance‐related pay relates positively to product‐market competition and foreign ownership.

Originality/value

The paper provides new empirical evidence on the use of performance‐related pay. The results support an interpretation of incentive pay as motivated by agency problems, and provide new evidence on the relationship between payment schemes and institutions such as unions and bargaining framework.

Keywords

Citation

Barth, E., Bratsberg, B., Hægeland, T. and Raaum, O. (2008), "Who pays for performance?", International Journal of Manpower, Vol. 29 No. 1, pp. 8-29. https://doi.org/10.1108/01437720810861985

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited