Heterogeneous effects of performance-based pay

Performance-based pay is a common method to increase productivity, but its effects vary substantially across studies. While this is partly driven by differences in incentive structures and other factors such as the size of the reward and employees’ risk preferences, this project explores an alternative explanation—the skill level of employees. The hypothesis is that high-skilled workers find it easier to meet performance targets than low-skilled workers.

We analyse the introduction of individual performance bonuses at a Dutch call centre within a multinational telecommunications company. The effects on work-related outcomes are studied by comparing employees eligible for bonuses with those who are not, using dynamic difference-in-differences methods. First, we estimate the overall effect and then we examine variations based on skill levels.

This project contributes to research on performance incentives and wage disparities at the firm level. Unlike previous studies, we focus on quality-based rather than quantity-based performance measures.