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Are firms paying more for performance?

Bryson, Alex and Forth, John and Stokes, Lucy (2014) Are firms paying more for performance? CEP Discussion Papers, CEPDP1272. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: CEPDP1272

Abstract

Despite its potential to raise productivity, performance-related-pay (PRP) is not widespread in market-oriented economies. Furthermore, despite secular changes conducive to its take-up, there is mixed evidence as to whether it has become more prominent over time. Ours is the first paper to present firm-level data for the Britain on both the incidence and size of bonus payments in the 2000s. We decompose the share of the total wage bill accounted for by bonuses into the shares of employment in the PRP and non-PRP sectors, the ratio of base pay between the two sectors, and the gearing of bonus payments to base pay within the PRP sector. We show that there was some growth in the share of total pay accounted for by bonuses in Britain in the mid-2000s. However this rise – and subsequent fluctuations since the onset of recession in 2008 – can be almost entirely explained by changes in the gearing of bonus to base pay within the PRP sector. There has been no substantial change in the percentage of employment accounted for by PRP firms; if anything it has fallen over the past decade. Furthermore, the movements in the gearing of bonuses to base pay in the economy at large are heavily influenced by changes in the Finance industry: a sector which accounts for a large proportion of all bonus payments in the British economy.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: © 2014 The Authors
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HN Social history and conditions. Social problems. Social reform
JEL classification: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages; Payment Methods
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Series: Working Papers > CEP Discussion Papers
Date Deposited: 26 Nov 2014 12:39
Last Modified: 26 Nov 2014 12:39
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/60266

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