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Are firms paying more for performance?

John Forth (National Institute of Economic and Social Research, London, United Kingdom)
Alex Bryson (National Institute of Economic and Social Research, London, United Kingdom AND Centre for Economic Performance, London School of Economics, London, United Kingdom)
Lucy Stokes (National Institute of Economic and Social Research, London, United Kingdom)

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 3 May 2016

Abstract

Purpose

The purpose of this paper is to investigate changes in the economic importance of performance-related-pay (PRP) in Britain through the 2000s using firm-level data.

Design/methodology/approach

The authors utilise nationally representative, monthly data on the total wage bill and employment of around 8,500 firms. Using these data, the authors decompose the share of the total economy-wide wage bill accounted for by bonuses into the shares of employment in the PRP and non-PRP sectors, the ratio of base pay between the two sectors, and the gearing of bonus payments to base pay within the PRP sector.

Findings

The growth in the economic importance of bonuses in Britain in the mid-2000s – and subsequent fluctuations since the onset of recession in 2008 – can be almost entirely explained by changes in the gearing of bonus to base pay within the PRP sector. There has been no substantial change in the percentage of employment accounted for by PRP firms; if anything it has fallen over time. Furthermore, movements in the gearing of bonuses to base pay in the economy are heavily influenced by changes in Finance: a sector which accounts for a large proportion of all bonus payments in Britain.

Research limitations/implications

The paper demonstrates the importance of understanding further how firms decide the size of bonus payments in a given period.

Originality/value

This is the first paper to present monthly firm-level data for Britain on the incidence and size of bonus payments in the 2000s.

Keywords

Acknowledgements

This work is funded by the Economic and Social Research Council, Grant Reference ES/I035846/1. It includes analyses based on data from the Monthly Wages and Salaries Survey, produced by the Office for National Statistics (ONS) and supplied by the Secure Data Service at the UK Data Archive. The data are Crown Copyright and reproduced with the permission of the controller of HMSO and Queen ' s Printer for Scotland. The use of the data in this work does not imply the endorsement of ONS or the UK Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research data sets which may not exactly reproduce National Statistics aggregates. The authors thank participants at the Eversheds Labour Relations Conference in 2012, the “New Research in Performance-related Pay” 2013 Conference at the University of Aberdeen, the 2013 WPEG Conference, the 2014 “Workshop on Firm- Level Analysis of Labour Issues” in Louvain, and seminars at NIESR and King ' s College, London for useful comments. None of these organisations bears any responsibility for the authors ' analysis and interpretations of the data.

Citation

Forth, J., Bryson, A. and Stokes, L. (2016), "Are firms paying more for performance?", International Journal of Manpower, Vol. 37 No. 2, pp. 323-343. https://doi.org/10.1108/IJM-01-2015-0006

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited