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  1. Home
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  3. American Economic Review
  4. December 2000
  5. Performance Pay and Productivity

Performance Pay and Productivity

  • Edward P. Lazear
American Economic Review
vol. 90, no. 5, December 2000
(pp. 1346-1361)
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Abstract

Much of the theory in personnel economics relates to effects of monetary incentives on output, but the theory was untested because appropriate data were unavailable. A new data set for the Safelite Glass Corporation tests the predictions that average productivity will rise, the firm will attract a more able workforce, and variance in output across individuals at the firm will rise when it shifts to piece rates. In Safelite, productivity effects amount to a 44-percent increase in output per worker. This firm apparently had selected a suboptimal compensation system, as profits also increased with the change.

Citation

Lazear, Edward, P. 2000. "Performance Pay and Productivity." American Economic Review, 90 (5): 1346-1361. DOI: 10.1257/aer.90.5.1346

JEL Classification

  • J33 Compensation Packages; Payment Methods
  • J24 Human Capital; Skills; Occupational Choice; Labor Productivity