Paid to perform? Compensation Profiles Under Pure Wage and Performance Related Pay Arrangements

John G. Sessions, John D. Skåtun

Research output: Working paperDiscussion paper

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Abstract

Whilst existing efficiency wage literature assumes detection probabilities of shirkers are exogenous, this paper finds them positively and endogenously dependent on non-shirkers’ effort. It shares the result with the endogenous monitoring models where, in some regions,workers reduce effort in response to higher wages, but differs in that firms never operate in those regions. The paper further provides theoretical reasons for the empirical regularity that increased usage of performance related pay (PRP) flattens the pay-tenure profile. Wages and effort increase over the lifecycle, both with and without PRP, but with late payments in PRP falling short of pure wage arrangements.
Original languageEnglish
Place of PublicationBonn, Germany
PublisherThe Institute for the Study of Labor (IZA)
Publication statusPublished - Apr 2011

Publication series

NameIZA Discussion Paper Series
No.5619

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  • Cite this

    Sessions, J. G., & Skåtun, J. D. (2011). Paid to perform? Compensation Profiles Under Pure Wage and Performance Related Pay Arrangements. (IZA Discussion Paper Series; No. 5619). The Institute for the Study of Labor (IZA).