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Journal of Industrial Relations Performance Pay and Job Satisfaction
John S. Heywood and Xiangdong Wei JIR 2006 48: 523 DOI: 10.1177/0022185606066143 The online version of this article can be found at:

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Australian Labour and Employment Relations Association

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1998). In particular. It has been used to identify compensating differentials in the labour market and to identify the characteristics of good jobs (Clark. 1999). 1973). however. Our at Alexandru Ioan Cuza on April 26. for women in Britain and the US and for union members (Clark. Klein. Blanchflower and Oswald (2004) provide a review of how this recent Downloaded from jir. 1999. Kennedy (1995). 2000). Job Satisfaction and Payment Schemes Renewed interest in job satisfaction has generated a variety of findings and a large literature. Miceli and Mulvey (2000) show that workers satisfied with their payment method are more highly committed to their firm. 2004). increases with provision of fringe benefits and varies with occupation. Ward and Sloane. 1997. he shows that it is possible for the morale effect to swamp the additional effort effect with the result that productivity actually declines as a result of the pay scheme. we break the individual performance pay into specific types of pay: piece rates. commissions. Brown and Sessions (2003) suggest that workers prefer employment environments seen as rewarding their productivity and that such environments are associated with increased worker optimism about future employment and pay. 1996. been declining over the last three decades in the United States (Blanchflower and Oswald. Finally. Sousa-Posa and Sousa-Posa. models the adverse consequence on morale of individual performance pay schemes that generate substantial earnings dispersion between workers doing the same job. The emerging empirical framework has been used to examine job satisfaction within particular occupations (Money and Graham. In previous research. 1999. We further breakdown the job satisfaction measure to examine three specific facets of job satisfaction finding a robust role for performance pay schemes. we use panel data to confirm that individual fixed effects are not generating the role we find for payment schemes. bonuses. Heneman and Judge.sagepub. we confirm greater job satisfaction relative to time rates. Brown (2001) shows that workers who believe their payment methods are 'fair' report higher levels of satisfaction with their pay. 1996). Job satisfaction is higher for the youngest and oldest workers (Clark. There also exists a literature on how relevant pay referents and deviations from them influence satisfaction with pay (Brown. all else equal. in general. This article adds to the literature by estimating the direct influence of performance pay schemes on job satisfaction. The estimates confirm greater job satisfaction for workers paid by profit sharing and by individual performance pay even after holding constant the level of pay. industry and skills and has.Journal ofIndustrial Relations (48)4 pay schemes may also increase or diminish productivity and satisfaction. on the other hand. 2013 524 . tips and stock options. For all types of pay other than piece rates. 2001). is novel in that it directly examines the link between the payment method and job satisfaction. Job satisfaction depends on comparison income (Clark and Oswald. 1996. 2000) and the job satisfaction of workers in developing countries (Mulinge and Mueller. Groot and van den Brink. Further.1 Job satisfaction decreases with hours. Oswald and Warr. 2001.

Payment schemes are designed to more closely align the interests of workers with those of the firm. failing to produce units that generate for them value added greater than their effort cost. Paid according to time rates. Thus. payment by results schemes may allow worker optimization that is not captured by other variables in typical determinants of job satisfaction. 2004). 2002). Against the hypothesis that performance pay increases workers surplus. Parent. Much of the work in economics focuses on worker and labour market characteristics available in typical micro-data sources. workers may inherently value the process of being rewarded on the basis of results (Brown and Sesssions. the observed Likert measure has been shown to correlate well with objective characteristics and behaviour (again see Blanchflower and Oswald. we might anticipate a positive association between payment schemes and job satisfaction. Godard (2001) provides evidence on the association of job satisfaction and high performance workplaces. payment schemes may be part of a bundle of HRM innovations associated with high performance workplaces. 2. The usual approach uses a Likert measure of self-reported job satisfaction as the realization of an underlying latent continuous variable thought of as the person's true wellbeing or utility from the job. exists a portrait of workers striving for subsistence at rates inadequate to cover basic needs. to the extent that payment schemes proxy such workplaces. 2003). work in social psychology. workers stop short of the optimal effort. Thus. 1984). Alternatively. for instance. Weller (1999: 205) cites Australian industrial relations decisions identifying piece rates as 'a deplorable practice' associated with unregulated work. Increased effort. Beyond the ability to optimize. Indeed. 2000. These workplaces may provide working conditions that create greater feelings of belonging. a wide range of studies have confirmed that those on piece rates increase effort and earn more than otherwise equal workers on time rates (Ewing. 1999).com at Alexandru Ioan Cuza on April 26. 2013 525 . Lazear. esteem and commitment. For instance. Parent. and is related to. is elicited through tying payment to results. 1995: Ch.sagepub. high stress jobs made worse by computerized monitoring and piece rates (Drago. otherwise equal workers paid according to piece rates earn greater surplus than those paid time rates. Beneria and Roldan (1987) report that piece rates are associated with jobs at the extreme bottom of social prestige and earnings. The literature uses observed worker and job characteristics as determinants of the self-reported Likert measure and a fairly standard set of independent variables has emerged. Case studies of call centres in both the US and UK present bleak pictures of low wage. 1996. workers paid piece rates or commissions equal to the full value added put forth the optimal effort by equating the marginal cost of effort with the marginal value added (see Lazear. To date. along a variety of possible dimensions. Seiler. payment methods have not been integrated into any of these estimations despite several reasons suggesting they play a role. Fernie and Metcalf.Heyzwood & Wei: Performanace Pay and Job Satisfaction economics literature grew from.2 Indeed. Oettinger. Thus. 1999. In Mexico. the close Downloaded from jir. While this latent variable is observable only to the individual and cannot be conveyed unambiguously to the interviewer. 2001. 1996.

workers may have reduced satisfaction from the increased earnings risk associated with performance pay schemes that may not be fully built into compensating wage differentials (MyersonMilgrom et al. 2002). Frey and Jegen (2001) review the literature from a variety of disciplines concluding that. First. Gibbons (1987) formalized the traditional union fear of 'ratcheting: a process in which piece rates are set only to be revised down after workers respond with additional effort. extrinsic incentives may crowd out the intrinsic motivation to do a good job. in statistical estimates following the introduction of performance pay. Theory predicts alternative influences of performance pay on job satisfaction. To the extent. this effect can dominate the traditional competition for pay and result in lower productivity in a firm using a performance pay scheme compared to one using time rates. 1999: 223). Fourth. 1988). it should increase satisfaction. it is 'more than offset' by opposing effects on those with low performance pay increments and by the'demotivating effect arising from difficulties of measuring and evaluating performance fairly' In summary. (2001) show that while there is evidence of an incentive effect for those gaining larger than average performance pay increments. on their morale which is determined by their relative pay status. Marsden et al.sagepub. in part. To examine which influence dominates we now turn to the data. Moreover. all else equal. Indeed. More recently. Thus.journal ofIndusrial Relations (48)4 association between piece rates and theabsence ofjobsecurityand entitlements in the Australian clothing industry has prompted unions in that country to call for the elimination of piece rates (Weller. 2013 526 . in some circumstances. it is possible that morale is reduced by the greater pay dispersion that results from performance payment at Alexandru Ioan Cuza on April 26. Kennedy (1995) assumes that the effort of individual workers depends. criticism of piece work goes back at least to Marx who criticized the 'putting out' system in the needle trades. Concern over relative pay is certainly evident in the actual design of payment schemes and personnel management texts routinely stress that equitable pay rates are important in creating harmony and productivity (see the studies cited in Akerlof and Yellen. that it creates earnings risk. Third. the crowding effect can actually dominate the traditional relative price effect associated with performance pay. Kennedy shows that if the workforce is sufficiently heterogeneous.3 Second. To the extent it allows optimization and an increase in surplus. At its most extreme such a process might shift the surplus associated with additional effort from the workers to the firm. crowds out intrinsic motivation. lowers morale and results in ratcheting. Downloaded from jir. contracts that reward only individual performance undermine the morale of the least productive workers and reduce their effort (productivity). it should lower satisfaction. a variety of mechanisms have been modelled that might alter the expectation that performance pay increases effort allowing workers to capture greater surplus. we face an important empirical issue that has received little or no direct examination..

say piece rates. Moreover. Blanchflower and Oswald (2004) confirm that that the basic results from estimating the determinants of job satisfaction have remains remarkably stable across industrial democracies and across time. The combination of attrition and the dropping of some respondents from a military subsample in 1985 result in an employed sample that still exceeds 6600 in 1988. This US survey is a representative sample of more than 12. 2013 527 . In addition. The survey question is identified to respondents as one on 'global job satisfaction' and asks 'How do you like your job? 0) very much dislike. the 1988 wave of the NLSY remains important as it provides four measures of job satisfaction and allows us ultimately to identify a half dozen types of performance pay. this data remains among the most appropriate for our testing purposes and has been used recently by others with related interests (see Geddes and at Alexandru Ioan Cuza on April 26. 1) somewhat dislike. The question on individual performance pay goes on to further identify five types of performance pay: piece rates. the questions simply ask whether or not the respondents receive those forms of pay. while more than a decade old. 2003). more nearly measure output. While somewhat dated. We emphasize that some of the criticism of performance pay such as effects on morale are not likely for profit sharing (assuming it is distributed evenly across workers). bonuses and stock options. some of the individual performance pay types.000 men and women between the ages of 14 and 22 at the time of the first wave in 1979. may depend on supervisory evaluations of effort while others. Moreover. In each case. 2) somewhat like. tips. we wish to examine more than a single aspect of job satisfaction and to have a reasonable variation in the types of performance pay. supervisors and pay.4 Nonetheless. or 3) very much like' Identical Likert Scale responses are then solicited to questions asking how well respondents like their co-workers. the estimations remain specific to the US and to the period of the late 1980s.Heywood & Wei: Performanace Pay and Job Saifaction Data and Empirical Methodology We need data that provides detailed information on the presence of performance pay and on job satisfaction. the NLSY has the added advantages of two additional years (1989 and 1990) that provide some (but not all) of these measures allowing for panel estimation. We use the 1988 wave of the National Longitudinal Study of Youth (NLSY).sagepub. Finally. say bonuses. The initial dependent variable is the extent of overall jobs satisfaction as indicated on a four point integer Likert Scale (zero to three). Specifically. The critical independent variables come from questions identifying two broad types of performance pay: profit sharing and individual performance pay. the many measures present an interesting variation of performance pay types for the empirical examination. We note that the variables on performance pay do not identify the share of Downloaded from jir. It is these three additional questions that are asked only in 1988. Thus. in total. these different types of performance pay are associated with different jobs and workers with different characteristics (Geddes and Heywood. 2003). Thus. commissions.

66 6577 6513 Pay 1. 4. 2 .not true at all.dislike somewhat.not true at all. a limitation shared with most individual data sets (see Heywood et al.38 2.48 very much.24 6621 Job Satisfaction Co-workers Supervisor at Alexandru Ioan Cuza on April 26. 2013 528 .46 2.Journal ofIndustial Relations (48)4 earnings that come from these types of performance pay.11 2. 2 .21 2. bonuses or stock options reporting higher satisfaction than time rate workers on all four measures. 1 . In addition.38 2. 3 . Global job satisfaction: how (do/did) you feel about (the job you have now/your most recent job)? 0 .very true.63 2.supervisor is competent in job? 0 .84 6598 Note: Questions on job satisfaction and their coding: 1.10 2.53 2.friendly co-workers? 0 . Downloaded from jir.not too true.29 2.very true.65 2. 1998).41 1.income is good? 0 . 3 .72 2.44 2.not true at all.32 2.67 2.somewhat true. 2. Those earning tips report higher satisfaction than those on straight time on three of the four measures while those on piece rates report higher satisfaction only with pay. Job satisfaction with supervisors: Job satisfaction.31 2. most recent job .. 1 .73 2. 3 . Job satisfaction with co-worker: Job satisfaction.somewhat true. 1 .very true.10 compared to those on time rates of only 1. This carries over to all of the other three facets of job satisfaction with the most dramatic differences being in satisfaction with pay for which those on performance pay (of either type) report an average of 2.14 2.91 2. The general pattern within the different types of individual performance pay is largely reproduced with those earning commissions. while we identify those workers who received neither profit sharing nor individual performance pay as time workers there may be exceptions. the NLSY does not have questions identifying types of group performance pay beyond that on profit sharing.56 2.47 2. the values of job satisfaction are fitted to the cumulative normal distribution through ordered probit estimates (see Clark and Oswald.not too true. The means of the job satisfaction variables are shown in Table 1 separated by method of pay. 2 .17 2. 3 . most recent job .like fairly well. The measure of job satisfaction is higher for both those on profit sharing and on individual pay compared to those on time rates.dislike very much. Thus. 1996 and Clark. 1997 among many others). 2 .40 2.58 2. 2002).sagepub.10 1. most recent job . 1 .29 2. Following past research.somewhat true. The means of the performance pay variables are very similar to those presented by other researchers using the NLSY (Parent.60 2.not too true.53 2. Job satisfaction with pay: Job satisfaction. 3. The ordered probit Table 1 Average Job Satisfaction by Payment Schemes Payment Schemes Global StraightTime (3099) Profit Sharing (1839) Individual Pay Schemes (1683): Piece Rates (199) Commission (335) Bonus (868) Stock option (60) Tips (221) Sample Size (6621) 2.

such as from least to most satisfied (see McKelvey and Zavonia.118 Plant size Pension Std.510 0.095 Dummy=1 if worker receives a stock option 0. 1975) and can be used to predict the probability of reporting each value for job satisfaction for variation in the values of the independent variables.96 Months of tenure on current job 8.042 0.552 Armed forces qualification test Source: 1988 wave of NLSY. 2013 529 .404 Union 0.540 Weekly hours of work 0.248 Hispanic at Alexandru Ioan Cuza on April 26.098 Injury AFQT 40.Heywood & Wei: Performanace Pay and job Satisfaction estimation follows appropriately when the dependent variable has a natural ordering.179 Dummy=1 if worker receives tips 0.331 Dummy=1 if respondent is Hispanic 0.218 Dummy=1 if worker receives a commission 0.512 The natural log of hourly earnings 0.892 Tenure 145.341 Years of completed education 144. Table 2 Variable Means and Standard Deviations (n=6545) Variables Mean Piece rate 0.125 Married 0.430 Dummy=1 if respondent receives any promotion since last interview 0.030 Commission 0.413 Dummy=1 if respondent has employer paid vacation days 0.490 0.033 Profit sharing 0.sagepub.28 Hours 41.464 0.251 Years of age 2.338 Dummy=1 if worker receives a bonus 0.440 Dummy=1 if respondent has employer provided health insurance 0.201 Dummy=1 if respondent has employer provided cfhildcare 0.500 Dummy=1 if respondent has an employer provided pension plan 0.050 Bonus 0.59 2396.499 Dummy=1 if respondent is female 0.737 0.43 The number of employees in respondent's workplace 0.131 Stock option 0.009 Tips 0.782 LogPay Promotion 2.018 0.297 Dummy=1 if respondent suffered from injury on current job since the last interview 29.277 Female 0.171 Dummy=1 if worker is paid by a piece rate 0.467 Black 0.120 Public 0. Downloaded from jir.383 Supervisor 27.432 Dummy=1 if respondent is African American 0.322 Dummy=1 if respondent's primary employer is the Childcare Health Ins Vacation government 514.Dev Meanings 0.447 Dummy=1 if worker receives profit sharing 0.325 Dummy=1 if respondent is a union member 0.486 Dummy=1 if respondent is a supervisor 2.500 Dummy=1 if respondent is currently married 0.246 0.047 Age Education 12.

2777 (0.2424 (5. Estimation of the Determinants of Job Satisfaction Table 3 presents the estimation of overall job satisfaction using the 1988 wave.029) -. In addition.0445 (1.949) -.0002 (0.1478** Female (3.0437 (3.299) -.090) (1.531) (0. employment relations and human capital variables.0009 (2.469) -.251) . The controls act largely as expected with minorities and those with an injury reporting lower job satisfaction and supervisors.0144** (1.556) -. They include demographic.0001 (0. 1996).262) Supervisor Age Tenure .947) .1543** (3.Journal ofIndustial Relations (48)4 The independent variables are shown in Table 2 and their choice largely follows the economics literature on job satisfaction.028) -.0089 (0.817) .716) -.860) -.3148** (7. region controls (5 categories).567) .0979** (0.515) .0220 (2.63) .0656* (6. Among these is the hours of work which allows us to distinguish between full and part time workers.673) .2687** Black (6.0058 (1.713) Downloaded from jir.0788* (1.470) (2.1176** (0.736) .com at Alexandru Ioan Cuza on April 26.247) .0001 (0.0913** (2.325) -.089** (4) .0069 (0.0278 (3.452) .0001 (0. the provision of a series of fringe benefits.122) -.8897** 2.0668 (6. actual earnings and comparison earnings as explanatory variables.002) .486** (7.873) .331) .038) -.0037 (0. 2013 530 .267) -.709) Hispanic Married .0413 (1.414) -.0937** Profit Sharing (2.0020 (0.0003** (2. we will use occupation controls (8 categories).1605** Individual Performance Pay (4.1096** (3.247) -.2066** (4.875) -.898) -. industry controls (13 categories). those with fringe benefits and with chances for promotion reporting higher job satisfaction.sagepub.The comparison earnings measure is based on a traditional log earningsequation and is the predicted earnings for each individual which proxies what an otherwise equal respondent would be expected to earn (Clark and Oswald.106) .585) -.846) .042) -.2438** (0.507) -.0745** (0. Those with higher earnings report greater overall job satisfaction and those with higher Table 3 Estimates ofJob Satisfaction (1988 NLSY) Satisfaction Satisfaction Satisfaction Global Job Satisfaction with Co-workers with Supervisor with Pay Constant (1) (2) 2.0100 (0.322** (3) 2.

1931** (2.14) 1 .0369 (1.235) .752) .026) (2.46) 2.49) -.1490* (7.287) (0.397) (1) Global Job -.0898* (0.310) (2.7803** (25.977) (0.1613** -.sagepub.9** 6589 (54.0078 -.048** (21.308) -..1528 (2.2176** (6.2533 (7.070) .0039** (4.2486** .0142 (0.915) .224) (2.06) 256.0757* .5377** (1.305) Regions Industry Occupations Mu(1) YES YES YES (0.778) .0223 -.0927** (4.1889** -.215) (1.2167** (4.246) (4.0365 (0.128) (2.350) -.701) -.749) -.457) -.0212 (3.0340 .2026** .790) YES YES YES Mu(2) Chi-squared N .0018 .2369 Comparison Wage SMSA Urban (4.1 826** -.134) .69) 1435.0075** .863) YES YES YES .55) 2.1337** .444) (0.280** (63.0660* (0.774) (0.907) (2.0323 (0.76) 484.938) . Downloaded from jir.1341** (3.9123** (6.886) YES YES YES . "Significant at the 5 percent level.36) 221.0447 (2.246) .7706** (12.0583 .135) -.967) .368) .772) -.0625 (1.1284** (6.666) -.0319 Public Promotions Injury Wage (0.675) (3.349) .002** (46.530) .397) .454) .0577 (1.- --- __ .5317** (0.85** 6598 (40..0653 (0.710) (1.1 156** (2.1316** .153) .0003** (0.185) (1. 2013 531 .835) 1 .0018 .153) -.7500 -.0584 -.090) .0515 (1.0001 -.1687** -.190) (0.740) (3.0001 -.596) (3.443) .0158 -.0694* (1.---- Union Establishment Size Pension Hours Child Care Vacation Health (4) (3) (2) Satisfaction Satisfaction Satisfaction Satisfaction with Co-workers with Supervisor with Pay .382** (80.667** (34.0934** (1.287) (2.1351** (3.299) (0.0500 .40) 2.095) -.447) (2.0** 6545 .Heywood & Wei: Performanace Pay and job Satisfaction at Alexandru Ioan Cuza on April 26.1759** .0419 (0.365) (1.3491 -.805) -.1 ** 6577 Note: *Significant at the 10 percent level.

com at Alexandru Ioan Cuza on April 26.026 . This estimation is remarkably flat with only a small handful of coefficients statistically significant.071 .022 . the first column of Table 4 shows a predicted probability of having the lowest job satisfaction of being . Table 4 Predicted Probabilities ofJob Satisfaction Without performance Very much dislike Somewhat dislike Somewhat like Very much like Profit sharing . The second column of Table 3 shows the estimation of satisfaction with co-workers. Importantly.486 . There is no indication that performance pay influences satisfaction with one's co-workers.Journal ofIndusial Relations (48)4 comparison income report lower overall job satisfaction.381 Profit sharing Individual performance and individual performance pay pay . both measures of performance pay emerge with large and statistically significant coefficients.026 probability for those with profit sharing and a still smaller . Thus. Conversely. All variables are held at their mean other than the performance pay indicators. Union members and those in larger firms are less satisfied with their co-workers while those with a chance of promotion and with childcare are more satisfied.481 . despite 50 explanatory variables those receiving either individual performance pay or profit sharing report greater overall job satisfaction. Thus.Thus.105 . as actual earnings are further above predicted earnings. the presence of both types of pay (holding actual earnings constant) cuts the probability of being in the least satisfied category roughly in half. We now exploit the three facets of job satisfaction available in the 1988 wave by replicating our estimation from column one with each of these measures. the worker reports greater satisfaction. all else equal. 2013 532 .018 .424 Note:These are projects based on the estimation reported in Column 1 ofTable 3.033 . This contrasts with a smaller .091 .398 pay .409 .485 . performance pay increases the probability of having the most job satisfaction as shown in Table 2. the notion suggested by Drago and Garvey (1998) that individual performance pay may generate less 'helping effort' and more Downloaded from jir.sagepub. 2004). These results have been replicated in other waves of the NLSY from the 1 980s and may reflect the relatively young age of the cohort (see Donohue and Heywood.022 probability for those with individual performance pay and .018 for those with both types of performance pay.083 . The magnitude of the effects is explored by taking all variables other than performance pay to be at their mean levels and predicting the satisfaction probabilities altering the payment method.033 for those with neither type of performance pay. Thus. Thus. The surprising coefficients are those for work hours and unionization which are both positive and that for women which is negative.487 .

2013 533 . in particular. These same workers may be more likely to report job satisfaction raising the possibility that performance pay is not genuinely associated with greater job satisfaction merely that it attracts those who would otherwise report being more satisfied under any method of at Alexandru Ioan Cuza on April 26. Such an effort may be critical to control for sorting. chances of promotion and those married reporting greater satisfaction with pay. performance pay. positively influences job satisfaction. Similarly. the contention that profit sharing should increase helping effort and generate more positive feelings gets no support. The controls follow a similar pattern to that already established with females. Instead. This contrasts with Rotemberg's (1994) claim that profit sharing may elicit better attitudes toward co-workers and a shift toward altruism within the firm. when statistically significant. across all facets and the overall measure. This. The final column shows the estimation of satisfaction with pay.sagepub. While not as pronounced as the results on overall satisfaction. There is evidence of such an influence in the overall measure. The earnings and comparison earnings variable follow the results from overall job satisfaction. females. The third column shows the estimation of satisfaction with their supervisor. We now combine all three waves of the NLSY to control for fixed effects. seems consistent with the notion that tying pay to performance allows workers to optimize. following the overall job satisfaction results. union members and the injured reporting less satisfaction and those with higher wages. Both emerge with large positive and significant coefficients. Not following the earlier results is the finding that older workers have lower satisfaction with their pay all else being equal. Thus. Indeed. blacks and those injured reporting lower satisfaction with pay. Those with fringe benefits. are those for individual performance pay and profit sharing. Lazear (2000) suggests that 56 percent of the increase in productivity associated with piece rates results from attracting inherently more productive workers (sorting). There is no evidence that individual performance pay influences satisfaction with supervisors but there is weak evidence that those on profit sharing feel more satisfied with their supervisor. there is an effect of the pay scheme independent of the level of earnings. 2005a). many of coefficients follow the same pattern with blacks. the pay measure and the supervisor measure. The pay measure results are particularly interesting as the level of pay is controlled for in the estimations so the correlations with performance pay do not simply reflectthefactthatthose on such schemes may earn morethan those not on such schemes. Jirjahn and Tsertsvadze. This is consistent with work from the German Socio Economic Panel suggesting that conflict with one's supervisor is reduced by the presence of profit sharing (Heywood.Yet. childcare and chances of promotion reporting greater satisfaction. To control for fixed effects (worker specific effects on job satisfaction) we estimate fixed-effects ordered probits using the within worker variation across Downloaded from jir.Heywood & Wei: Performanace Pay and Job Satisfaction competition among co-workers thereby generating more negative feelings toward co-workers receives no support.

0452 (2.2814** (1.671) .108) .Journal ofIndustrial Relations (48)4 the three waves.121) (4.5 The specification used in Table 3 is replicated recognizing that variables which show no variation across the years for a given worker will drop out of the estimation (such as race and gender).694) . Most of the controls carry over with same sign and with statistical significance. commissions. some observations are only in the panel two of three years so the panel is unbalanced with a resulting final number of observations of 8859 across the three waves.2104 (2.965) .1231** (2.2937** (2.3488** (0. Also those workers who have the identical level of job satisfaction in all three years add nothing to the underlying likelihood function and drop out of the estimation as well.314) Profit sharing (0.0351 (3.1644 (2. The latter result suggests that the previous influence attributed to unionization may be a result of the individuals who are sorted into unionization.1322** (4. bonuses.483) .314) .271) Stock options Tips .1613** (0.631) -.083) -. Thus. The noticeable changes include the emergence of a strong negative effect for additional tenure and the loss of any union effect.5737** (1. The critical measures of performance pay both emerge with the same sign.3095** -.821) -.090) .0763* .1177** Married Supervisor (1.4293** (2.439) Downloaded from jir. Finally.6603** (3.055) (7.1076* (0. rough size and levels of statistical significance.1537** (3.935) -.224) -. stock options or tips.677) . We next use the disaggregated measure of individual performance pay to isolate the separate influences of receiving piece rates. Thus. Column 1 of Table 5 summarizes the results.084) -.697) .3481 ** (2.5538** (1. those receiving indiyidual performance pay or profit sharing report higher overall job satisfaction.725) .614) .sagepub. 2013 534 .0348 (0. even after accounting for individual worker effects.2955** (8.226) .841) .2697* -.5882** ( at Alexandru Ioan Cuza on April 26.0422 .392) . the fixed effect estimate of job satisfaction now Table 5 Panel Estimates ofjob Satisfaction (i988-9ggo NLSY) (1) Global Job Satisfaction Individual performance pay Piece rates Commissions Bonuses (2) Global Job Satisfaction (3) Global Job Satisfaction (MEN) (4) Global Job Satisfaction (WOMEN) .1134** (2.059) (8.882) .0823** (1.001) .6735** (3.

805) .701) -.1967** (0.0553 (6.342) Childcare Vacation .3985** (5.1978* (1.2523** (5.844) .011) -. 2013 535 .871) -.3313** (2.3310** (7.95) 4944 (52.75) 3.3386** (5.300) .0455 (0.526) -.612) .323) -.841) .791) -.404) YES YES YES 1.4976** (0.286** (34.2071 ** (3) Global Job Satisfaction (MEN) -.3529** (5.045) .3671 ** (2.328) .774)) .0007** Establishment size Pension Hours -.0001 (0.879) -.782** (77.2718** (3.3704** (7.0691 (4.2067** (5.633) -.0296 (0.525** 3.0001 (1.278) .034) -.3566** (5.036) .220) .260) -.981) -.0062** (3.0214 (0.0476 (4.503) -.550** (1.671) Urban Regions Industry Occupations Mu(1) .3491 ** (5.0295 (0.323) .80) Mu(2) N (34.Herywood & Wei: Perfotrmanae Pay and job Satifaciion (1) Global Job Satisfaction Tenure Union (2) Global Job Satisfaction -.388) YES YES YES 1.384) .793** (25.300) -1.587) -.0007** (4) Global Job Satisfaction (WOMEN) at Alexandru Ioan Cuza on April 26.2081 ** Health Public Promotions Injury (4.149) -.868) -.4625 (4.0178 (3.60) 4.2322** (1.5175** (3.0001 (0.746) .0819 (2.721) -.7065** (6.125) .051) Wage . Downloaded from jir.0006 (4.3238** (1.7604** (5.474) .794) YES YES YES 1.854) -.456) .001) .012) .sagepub.1291 (0.0161 (0.705) .11) 8859 (55.0439 (0.41 6** (2.2807** (4.064) .779) .0003 (2.790) .2389** (2.903) .503) .834) -. "Significant at the 5 percent level.17) 8859 (77.022) Comparison wage SMSA -.779) .357) .4894** (1.078** (23.417** (1.117) .310) .4000** (3.362) -.1896* (0.137) .092) .80) 3.1991* (0.1001 ** (0.2625** (2.0228 (0.85) 3915 Note: *Significant at the 10 percent level.2001 ** (4.293) YES YES YES 1.4169** (2.535) -.0001 (0.578** (4.3515** (7.0006** (5.0054** (2.0248 (0.

Piece rates emerge with a negative coefficient even as the other four individual performance pay measures and profit sharing have positive coefficients. (2005b) present German evidence that while profit sharing causes greater cooperation among men. 2013 536 . Profit sharing and all of the five measures of individual performance pay have statistically significant coefficients. if women are less able to respond to group incentives. these same arguments would seem to apply to commissions which are often taken as a sales equivalent of piece rates. The male results largely mimic the combined sample with the exception of tips for which there is an insignificant coefficient. 1995). It is possible that the negative coefficient for piece rates reflects either the morale effect (Kennedy. some basic differences are evident as shown in the third and fourth columns of Table 5. 1998) or the ratchet effect (Gibbons.Journal ofIndusial Relations (48)4 has six indicators of performance pay. We follow-up the suggestion that gender may be an important related variable by estimating the fixed effect probit separately by gender. those on commissions are longer tenure workers and disproportionately male when compared to other workers in sales. holding the wage constant. In general. 1987). First. The results are presented in column 2. Interestingly. the pattern of individual performance schemes is different for women. The pension and hours results evident in the combined sample are generated exclusively by men but the childcare and marital status results evident in the combined sample are generated exclusively by women. Geddes and Heywood (2003) show that there are actually substantial differences between those who receive piece rates and those who receive commissions. Yet. Heywood et al. While piece rate workers are disproportionately shorter tenure workers and women (Goldin. profit sharing is not even close to being important for women. Second. While this reduces sample size. an interesting pattern. the deterioration of helping effort and coworker relations (Drago and Garvey.6 There are substantial differences in the role of performance pay as well. This suggests that while men value profit sharing. They do not show the same negative influence from piece rates or the same positive influence from commission or bonuses. 1986). The point is not to conflate job satisfaction with motivation but rather to stress that the mutual monitoring that is associated with profit sharing may have a less positive influence on those workers least able to respond to such monitoring with additional at Alexandru Ioan Cuza on April 26. The absence of a negative influence from piece rates for women may reflect the association of piece rates with circumstances without interdependent Downloaded from jir. This result fits with the conjecture that women will not be well motivated by group schemes as such schemes are common in circumstances of interdependent productivity and in these circumstances the lower labour force attachment of women places them at a disadvantage. Thus. Thus. there appears to be less of a role played by methods of pay in the job satisfaction of women. women do not value profit sharing. they may feel greater peer pressure and so less job satisfaction. The female results reveal a strikingly different pattern. it does not do so for women. There is. however.sagepub.

They certainly deserve to be examined in other countries and in more recent years. stock options and bonuses all joined profit sharing in having a strong positive association with job satisfaction holding constant the level of earnings. There are many contradictory and complex implications from theory but a basic building block is that such schemes reward productivity and so allow workers to optimize in a way that a salary or hourly wage does not. Notes 1 Donohue and Heywood (2004) show that the gender difference in job satisfaction may not exist among younger US workers. tips. In panel estimates. In general this anticipation has been confirmed but there remain some interesting patterns that suggest a more complex association. These associations carried over to two of the three facets with the results for satisfaction with pay being extremely strong. Interestingly. Dividing the results by gender revealed that most of the associations were being generated by males. Women in particular seem to get no additional satisfaction from profit sharing schemes. 2013 537 . Conclusion The object of this article has been to test for the direct influence of performance pay schemes on job satisfaction.Heyzvood & Wei: Performanace Pay and job Satisfaation productivity providing more flexibility for home and work responsibilities (Heywood and Wei. 1997). we anticipated that both individual performance pay and profit sharing should be associated with greater job satisfaction even holding the wage constant. In addition. Downloaded from jir. holding fixed worker effects at Alexandru Ioan Cuza on April 26. We note that our results are specific to the United States and to the time frame of our data. piece rates emerged with a negative association. The fixed effect estimates then disaggregated the individual performance pay variable into five constituent parts. a result we suggest may reflect their relative disadvantage in circumstances of team production where there is a greater premium on labour force attachment. Siebert and David MacPherson as well as those of seminar participants at Florida State University and the University of Melbourne. detailed information on the share of earnings associated with performance pay schemes might be able to shed further light on the relationship between such schemes and job satisfaction. The differences across genders suggest that the link between payment method and pay need not be universal. Acknowledgement The authors thank the Centre for Public Policy Studies at Lingnan University for a travel grant that allowed the authors to work together and recognize the valuable comments of W. the same two performance pay indicators retained strong statistical significance.S. The indicators for commissions. In the cross-sectional estimations both individual pay schemes and profit sharing are associated with greater job satisfaction.sagepub. Thus.

and Jergen. and Oswald. E. Drago. R (1996) 'is Job Satisfaction U-shaped in Age?' Journal of Occupational and Organization Psychology 69(1): 57-81. S. R. and Garvey. A. and Yellen. L. M. H.G..sagepub. (2003) 'Attitudes. (1988) 'Job Switching and Job Satisfaction in the US Labor Market' Brookings Papers on EconomicActivity 1988(2):495-82. (1999) '(Not) Hanging on the Telephone: Payment Systems in the New Sweatshop. and Martha Roldan. A. Unequal Responses? Pay Referents and their Implications for Pay Level Satisfaction'JournalofManagement Studies 38(6): 879-96. S. Brown. S The estimation was performed with specific ordered probit with fixed effect programs in Limdep 8. L. D. B. Downloaded from jir. and Warr. Beneria. Drago. 4 They also show that while overall job satisfaction has been stable in the UK it has declined recently in the US. J. D. A. Subcontracting and Household Dynamics. 15(5): 589-611. A. S. (1997) 'Job Satisfaction and Gender: Why are Women so Happy at Work?: Labour Economics 4(4): 341-72. Ewing. (1996) 'Job Satisfaction in Britain' British Journal of Industrial Relationr 34(2): 189-217. S. Frey. A.Advances in Industrial Relations 9: 23-68. A. (1996) 'Workplace Transformation and the Disposable Workplace: Employee Involvement in Australia. (2004) 'Job Satisfaction and Gender: An Expanded Specification from the NLSY InternationalJournal ofManpower 25(2): 211-34. Alchian.0. Oswald. (1996) 'Satisfaction and Comparison Income' Journal of Public Economics 61(3): 359-81. S. at Alexandru Ioan Cuza on April 26. Industrial Relations 35(4): 526-43. and Demsetz. G.Journal ofIndustrial Relations (48)4 2 This begs the question why all workers are not paid with piece rates but technology of production often prohibits identifying individual contributions or pieces (Alchian and Demsetz. M. 1972) and in these circumstances appropriate piece rates cannot be established. 6 The fact that men and women value different fringe benefits and that these differences are reflected in job satisfaction has been shown by Donohue and Heywood (2004). (2001) 'Unequal Pay. and Heywood. and Sessions. E. Donohue. Clark. M. A. (2001) 'Motivation Crowding Theory Journal of Economic Surveys. (1987) The Crossads of Class and Gender: Industrial Homework. A. 2013 538 . 3 This view would seem to depend on the presence of monopsony power of the firm in the labor market. J. Rose. A. Information and Economic Organization'American Economic Review 62(3): 777-95. R. E. (2001)'What Really Matters in a Job? Hedonic Measurement Using Quit Data: Labour Economics 8(2): 22-42. Economics Letters 51(2): 241-6. Journal ofPublic Economics 88(3): 1359-86. Expectations and Sharing' Labour 17(4): 543-69. Clark. (1998) 'Incentives for Helping on the Job: Theory and Evidence: Journal ofLabor Economics 16(1): 1-25. Blanchflower.T. Clark. Clark. Brown. and Oswald. Clark. (2004) 'Well-being Over Time in Britain and the USA.. A. and Metcalf. B. Chicago: University of Chicago Press. J. A. R. K. References Akerlof. E. Fernie. E. G. (1996) 'Wages and Performance Base Pay: Evidence from the NLSY. (1972) 'Production Costs.

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as a social and democratic corrective? A very interesting example of the challenges and changes of co-determination is Volkswagen (VW). characterized by the globalization of production and the financialization of corporate] Downloaded from jir. The example of VW shows that globalization and financialization can be accompanied by new forms of regulation of industrial relations and enhanced opportunities for co-determination to participate in entrepreneurial decision-making at Alexandru Ioan Cuza on April 26. (48)4 541-546 [DOI: 10. Munscheidstral3e 14. Is co-determination being rendered irrelevant by these changes? Or can co-determination come to play a role of its own in the economic process . This view is based on evidence from extensive field research in the archives of the company and on interviews with experts of management and the works council at all levels in the company. Germany Introduction For well over a decade.sagepub.45886 Gelsenkirchen. 2013 541 . While co-determination is seen from different angles. Institute Work and Technology. Thousand Oaks and New Delhi ISSN 0022-1856. Germany. there is one denominator common to all research.W)JIR Journal ofIndiustrial Relations (48)4 0 Industrial Relations Society of Australia RESEARCH NOTE SAGE Publikations Ltd.1 177/0022185606066144] Recent Developments in Co-determination atVolkswagen: Challenges and Changes Thomas Haipeter Institute Work and Technology. Germany. London. Contact address: Thomas Haipeter. It is the question about the risks and opportunities of co-determination in an age of far-reaching and radical changes in the worlds of work and economy. there has been a growing interest in the institution of co-determination by German social scientists. [email: haipeter@iatge.