Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
The Tenuous Relationship between Effort and Performance Pay
() and Trond E. Olsen
Abstract: When a worker is offered performance related pay, the
incentive effect is not only determined by the shape of the incentive
contract, but also by the probability of contract enforcement. We show that
weaker enforcement may reduce the worker's effort, but lead to
higher-powered incentive contracts. This creates a seemingly negative
relationship between effort and performance pay.
Keywords: Effort; performance pay; incentive contract; (follow links to similar papers)
JEL-Codes: J30; (follow links to similar papers)
28 pages, June 29, 2012
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