Performance-Related Pay: The Expected and the Unexpected

Research output: Chapter in Book/Report/Conference proceedingChapter


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.
Original languageEnglish
Title of host publicationHandbook of Labor, Human Resources and Population Economics
EditorsKlaus Zimmermann
Number of pages28
ISBN (Electronic)978-3-319-57365-6
Publication statusE-pub ahead of print - 19 Apr 2022

Bibliographical note

Responsible Section Editor: Klaus F. Zimmermann. The article has benefitted from valuable comments of the editors and anonymous referees. Financial support by the UK ESRC (Grant ES/R01163X/1) for related research for Professor Bender is gratefully noted. There is no conflict of interest.


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