Performance-related pay may be considered exploitative, or a management strategy that increases both earnings and work intensification.
Washington: Do incentives at your workplace make things stressful? A study finds that incentive-related pay schemes cause stress rather than motivating employees.
The results, published in Human Resource Management Journal, confirm that performance-related pay is also associated with more intense working. This could mean employees are encouraged to work too hard and too much, leading to work-related stress or poor well-being and offsetting some of its positive impact on staff.
"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," said lead researcher Dr Chidiebere Ogbonnaya.
"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," Dr Ogbonnaya added.
Researchers from the University of East Anglia in London explored the relationship between three types of 'contingent pay' - performance-related, profit-related and employee share-ownership - and positive employee attitudes such as job satisfaction, employee commitment and trust in management.
They found that only performance-related pay had a positive impact. This new study involved 1,293 managers and 13,657 employees at 1,293 workplaces in London.
"As a consequence, performance-related pay may be considered exploitative, or a management strategy that increases both earnings and work intensification," Dr Ogbonnaya stated.
The results revealed that profit-related pay had positive relationships with job satisfaction, employee commitment and trust in management if profit-related pay was distributed widely across the organisation.
Profit-related pay was associated with lower job satisfaction, lower employee commitment and lower trust in management in those organisations that distributed profit-related pay only to a small proportion of the workforce.
Another surprising finding was that employee share-ownership had a negative relationship with job satisfaction and no significant relationships with employee commitment and trust in management.