What is it about?
Performance-related pay (PRP) is one of the most widely researched areas in labor economics given its intuitive allure at giving incentives for high productivity. While firms have used a variety of types of PRP, there are some well-known, and other less well-known, effects and distortions that PRP systems encounter in practice. This chapter reviews the basic theory of PRP and covers some of the recent empirical research on the effects of PRP on a number of different economic outcomes. Importantly, PRP is framed in a new light, by discussing some of the actions that firms take to counteract the distortions that PRP can generate.
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Why is it important?
PRP is an increasingly used form of compensation. While there are many potential benefits of using PRP, there are also a number of challenges with its use and this paper highlights these challenges.
Perspectives
This was a good way of putting together the theoretical and empirical literatures on PRP together.
Professor Keith A Bender
University of Aberdeen
Read the Original
This page is a summary of: Performance-Related Pay: The Expected and the Unexpected, January 2022, Springer Science + Business Media,
DOI: 10.1007/978-3-319-57365-6_316-1.
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