Are firms paying more for performance?

We use nationally-representative, monthly data on the total wage bill and employment of around 8,500 firms to investigate fluctuations in the economic importance of performance bonuses in Britain over the past 15 years. We decompose the share of the total economy-wide wage bill that is accounted for by performance-related pay (PRP) into: (i) the shares of employment in the PRP and non-PRP sectors; (ii) the ratio of base pay between the two sectors; and (iii) the gearing of bonus payments to base pay within the PRP sector.

Has Performance Pay Increased Wage Inequality in Britain?

Using data from the British Household Panel Survey (BHPS) we show performance pay (PP) increased earnings dispersion among men and women, and to a lesser extent among full-time working women, in the decade of economic growth which ended with the recession of 2008. PP was also associated with some compression in the lower half of the wage distribution for women. The effects were predominantly associated with a broad measure of PP that included bonuses.

Who fared better? The fortunes of performance-pay and fixed-pay workers through recession

We examine whether those paid for performance fared better in terms of wage growth and job tenure than their fixed pay counterparts through the most recent recession. In theory we might anticipate that, since performance pay workers share the income risks of economic shocks with their employers, their earnings may have declined more than those of fixed pay employees. However, for this very reason, they may experience more stable employment patterns than fixed pay workers whose ‘stickier’ wages may make them susceptible to job loss.

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

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.

What Happens to Performance Pay in Recession?

Presentation to Annual WPEG Conference 2013, Sheffield.