How contingent pay affects employee wellbeing

According to new research conducted by the University of East Anglia (UEA), contrary to what companies believe, employees are more stressed than motivated when the firm operates on incentive-related pay schemes.

Researchers studied the relationship between three types of contingent pay (performance-related, profit-related, and employee share-ownership) and positive employee attitudes including job satisfaction, employee commitment, and trust in management, said the report by Science Daily.

Of the three, only performance-related incentives had a positive impact on employee wellbeing while the other two showed a mix of negative or no negative effect.

But it’s not all good news as the study also revealed that performance-related pay also meant more intense work for employees, thus, “leading to work-related stress or poor wellbeing, and offsetting some of its positive impact on staff”.

Lead researcher Dr Chidiebere Ogbonnaya of UEA’s Norwich Business School, said that contingent pay “represents one of the elements HR management systems aimed at achieving sustainable, competitive, success for an organisation”.

“Our study is the first to show empirical support for claims that the productivity gains of these pay schemes might be associated with employees' experience of more intense working,” he said.

“Performance-related pay in particular is associated with the feeling that work might be too demanding or that there is insufficient time to get work done.”

He said that these incentives send a signal to employees that extra work effort is rewarded with more pay, making them feel obliged to work harder.

Ultimately, however, it is the organisation that benefits the most from this arrangement, he said.

“As a consequence, performance-related pay may be considered exploitative, or a management strategy that increases both earnings and work intensification,” he said.

“The key thing for managers is to ensure some balance between employee job demands and measurement of rewards offered,” he added.

Profit-related, employee share-ownership
Profit-related incentives only had positive effects when it was distributed widely across the organisation, said their report, while employee share-ownership showed ‘surprisingly’ negative effects on job satisfaction and no impact on commitment and trust in management.

“Employers should ensure that mechanisms for distributing organisational profits are administered efficiently so that deserving employees are not missed out,” said study co-author, Kevin Daniels, professor of organisational behaviour at Norwich Business School.

“If profit-related pay is spread across the workplace, employees may show greater acceptance and respond with positive attitudes."

This study involved surveys and interviews with more than 1,000 managers and 13,657 employees across various workplaces in the UK and is published in the latest Human Resource Management Journal.