Differentiation in pay for performance within organizations: an occupational perspective

Abstract

PurposeThis study aims to address the question of why organizations do not uniformly apply pay for performance (PFP) throughout the organization, focusing on the wider occupational structure in which they and the jobs they create are embedded. The authors propose a model of “occupational differentiation” whereby the probability of a job within a given organization having PFP increases with the levels of monitoring difficulty and requisite human asset specificity characterizing the occupation to which a job belongs, being highest in occupations characterized by high levels of both (generally managerial and professional occupations).Design/methodology/approachUsing the Workplace Employment Relations Survey (a nationally representative matched employer–employee dataset for Britain), this paper investigates this question for all 350 occupations delineated by the UK's Office for National Statistics using regression methods that adjust for other confounding factors such as demographic factors and workplace fixed effects.FindingsThe authors find organizations “occupationally differentiate” the use of PFP in ways consistent with the model, i.e. PFP is most likely to be found in occupations characterized by both high monitoring difficulty and high requisite human asset specificity (mainly managerial and professional occupations) and least likely in occupations scoring low in both. The finding holds across PFP types (individual, group, organizational), whether organizations are large or small, and hold across most industrial sectors.Research limitations/implicationsThe main implication of this study is that organizations appear to be taking into consideration whether the wider profession to which a job belongs when implementing PFP, irrespective of their own human resource management strategies and organizational context. There are a few limitations to this study, with the main one being that this model is mainly confined to empirical support is only found in the private sector. The public sector appears to be beyond the reach of the model, where PFP implementation is generally rarer. A second limitation is that the dataset is from 2011 and only covers a single country.Practical implicationsGiven organizations appear to be implementing PFP based on occupation, this may lead to equity concerns, as different groups are being treated differently within organizations based upon their occupational group.Social implicationsAs PFP jobs tend to pay more than non-PFP jobs and PFP prevalence has been growing, by being more likely to implement it for generally high-paid groups (generally higher managerial and professional occupations), PFP may contribute to wider pay differentials within and between organizations.Originality/valueBy introducing the occupational-level of analysis and the differential nature of tasks across occupational groups, the model offers a new midrange, sociological perspective to understanding intra-organizational dynamics in PFP use and potentially human resource practices more broadly.

The Rise in Pay for Performance Among Higher Managerial and Professional Occupations in Britain: Eroding or Enhancing the Service Relationship?

“…Moreover, PFP can act as a way to retain valuable specific human capital as a form of ‘efficiency wage’ (Akerlof, 1982). Empirical research has generally found PFP-use is greatest where work is difficult to monitor and where human asset specificity is high (Williams et al, 2019). Indeed, PFP is often taken as an indicator of the service relationship, while overtime pay is an indicator of the labour contract characterized by discrete amounts of effort for discrete amounts of reward (Evans and Mills, 1998, 2000; Zou, 2015).…”