Incentive pay schemes can affect employee wellbeing

Incentive-related pay schemes can stress rather than motivate employees, according to researchers from the University of East Anglia and University of Sheffield. This study looks at the relationship between performance-related pay, profit-related pay and share ownership and measures of positive employee attitudes, including job satisfaction and trust in management. It concludes that profit-related pay and share ownership have very little positive impact on attitudes and that performance-related pay is associated with more intense working.

Lead researcher, Dr Chidiebere Ogbonnaya, said:

‘Our study is the first to show empirical support for claims that the productivity gains of these pay schemes might be associated with employees’ experience of more intense working. Performance-related pay in particular is associated with the feeling that work might be too demanding or that there is insufficient time to get work done.
By tying employees’ performance to financial incentives, employers send signals to employees about their intention to reward extra work effort with more pay. Employees in turn receive these signals and feel obliged to work harder in exchange for more pay. Even though employees may value these earnings as a “good thing”, the ultimate beneficiary of their extra effort is the organisation. As a consequence, performance-related pay may be considered exploitative, or a management strategy that increases both earnings and work intensification.’

Co-author Kevin Daniels, professor of organisational behaviour at Norwich Business School, said there was a need to encourage fairness and adequate employee uptake of profit-sharing arrangements.

‘Employers should ensure that mechanisms for distributing organisational profits are administered efficiently so that deserving employees are not missed out. If profit-related pay is spread across the workplace, employees may show greater acceptance and respond with positive attitudes.’

About the study

  • The academics used data from the management and employee surveys of the 2011 Workplace Employment Relations Study, which is representative of around a third of all British workplaces.
  • Organisational-level data was also gathered through interviews with senior managers in employment relations and HR.
  • Employee-level data was collected through a questionnaire distributed to all employees in workplaces with fewer than 25 employees, and to a random sample of 25 employees in larger workplaces with more than 25 employees.
‘Does contingent pay encourage positive employee attitudes and intensify work?’, Chidiebere Ogbonnaya and Kevin Daniels, University of East Anglia and Karina Nielsen, University of Sheffield, Human Resource Management Journal.