Performance Pay and Low Grade Stress: An Experimental Study

Ioannis Theodossiou* (Corresponding Author), Keith Bender, Julia Allan

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

BACKGROUND: Although recent economics literature suggests a link between performance pay (PRP) and ill health, this finding is contested on the grounds that this link is plagued by endogeneity between the two variables of interest. OBJECTIVE: This study investigates the adverse effects of performance pay on stress which is an important determinant of physical health. METHODS: Forty subjects were randomly assigned to two equal groups; either being paid by performance or being paid a flat fee. Both objective (saliva samples to measure cortisol elevation) and subjective (self-reported stress level) measures of stress were obtained before and after participation in the experiment. This experimental methodology purges the effects of self-selection into performance pay and identifies the direction of causation from performance pay to stress which is measured by cortisol levels. RESULTS: Those who were paid for their performance experienced higher levels of stress, both in terms of perceived stress and in terms of objectively measured cortisol levels, compared to those who were paid a flat fee for minimum performance. CONCLUSIONS: Performance related pay induces objectively measurable stress. Self-reported stress levels and the objective stress measure obtained by measuring cortisol move in a similar direction for the PRP and nonPRP groups, but only the cortisol group shows statistically significant differences between the PRP and nonPRP. This also suggests that individuals are underestimating the stress due to performance pay.
Original languageEnglish
JournalWORK: A Journal of Prevention, Assessment & Rehabilitation
Publication statusAccepted/In press - 19 Oct 2019

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Incentive Reimbursement
Hydrocortisone
Fees and Charges
Health
Saliva
Causality
Economics

Keywords

  • performance-related pay
  • real-effort experiment
  • stress
  • cortisol

Cite this

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title = "Performance Pay and Low Grade Stress: An Experimental Study",
abstract = "BACKGROUND: Although recent economics literature suggests a link between performance pay (PRP) and ill health, this finding is contested on the grounds that this link is plagued by endogeneity between the two variables of interest. OBJECTIVE: This study investigates the adverse effects of performance pay on stress which is an important determinant of physical health. METHODS: Forty subjects were randomly assigned to two equal groups; either being paid by performance or being paid a flat fee. Both objective (saliva samples to measure cortisol elevation) and subjective (self-reported stress level) measures of stress were obtained before and after participation in the experiment. This experimental methodology purges the effects of self-selection into performance pay and identifies the direction of causation from performance pay to stress which is measured by cortisol levels. RESULTS: Those who were paid for their performance experienced higher levels of stress, both in terms of perceived stress and in terms of objectively measured cortisol levels, compared to those who were paid a flat fee for minimum performance. CONCLUSIONS: Performance related pay induces objectively measurable stress. Self-reported stress levels and the objective stress measure obtained by measuring cortisol move in a similar direction for the PRP and nonPRP groups, but only the cortisol group shows statistically significant differences between the PRP and nonPRP. This also suggests that individuals are underestimating the stress due to performance pay.",
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author = "Ioannis Theodossiou and Keith Bender and Julia Allan",
year = "2019",
month = "10",
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language = "English",
journal = "WORK: A Journal of Prevention, Assessment & Rehabilitation",
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TY - JOUR

T1 - Performance Pay and Low Grade Stress

T2 - An Experimental Study

AU - Theodossiou, Ioannis

AU - Bender, Keith

AU - Allan, Julia

PY - 2019/10/19

Y1 - 2019/10/19

N2 - BACKGROUND: Although recent economics literature suggests a link between performance pay (PRP) and ill health, this finding is contested on the grounds that this link is plagued by endogeneity between the two variables of interest. OBJECTIVE: This study investigates the adverse effects of performance pay on stress which is an important determinant of physical health. METHODS: Forty subjects were randomly assigned to two equal groups; either being paid by performance or being paid a flat fee. Both objective (saliva samples to measure cortisol elevation) and subjective (self-reported stress level) measures of stress were obtained before and after participation in the experiment. This experimental methodology purges the effects of self-selection into performance pay and identifies the direction of causation from performance pay to stress which is measured by cortisol levels. RESULTS: Those who were paid for their performance experienced higher levels of stress, both in terms of perceived stress and in terms of objectively measured cortisol levels, compared to those who were paid a flat fee for minimum performance. CONCLUSIONS: Performance related pay induces objectively measurable stress. Self-reported stress levels and the objective stress measure obtained by measuring cortisol move in a similar direction for the PRP and nonPRP groups, but only the cortisol group shows statistically significant differences between the PRP and nonPRP. This also suggests that individuals are underestimating the stress due to performance pay.

AB - BACKGROUND: Although recent economics literature suggests a link between performance pay (PRP) and ill health, this finding is contested on the grounds that this link is plagued by endogeneity between the two variables of interest. OBJECTIVE: This study investigates the adverse effects of performance pay on stress which is an important determinant of physical health. METHODS: Forty subjects were randomly assigned to two equal groups; either being paid by performance or being paid a flat fee. Both objective (saliva samples to measure cortisol elevation) and subjective (self-reported stress level) measures of stress were obtained before and after participation in the experiment. This experimental methodology purges the effects of self-selection into performance pay and identifies the direction of causation from performance pay to stress which is measured by cortisol levels. RESULTS: Those who were paid for their performance experienced higher levels of stress, both in terms of perceived stress and in terms of objectively measured cortisol levels, compared to those who were paid a flat fee for minimum performance. CONCLUSIONS: Performance related pay induces objectively measurable stress. Self-reported stress levels and the objective stress measure obtained by measuring cortisol move in a similar direction for the PRP and nonPRP groups, but only the cortisol group shows statistically significant differences between the PRP and nonPRP. This also suggests that individuals are underestimating the stress due to performance pay.

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KW - real-effort experiment

KW - stress

KW - cortisol

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JO - WORK: A Journal of Prevention, Assessment & Rehabilitation

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SN - 1051-9815

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