Journal of Management & Governance

, Volume 10, Issue 2, pp 149–177

What Makes Performance-Related Pay Schemes Work? Finnish Evidence



We analyze how features of performance-related pay (PRP) schemes affect their perceived motivational effects using a Finnish survey for upper white-collar employees from 1999. The results show that the following features are important for a successful PRP scheme: (i) the employees have to feel they are able to affect the outcomes; (ii) the organizational level of the performance measurement should be close to the employee: individual and team level performance measurement increase the probability that the scheme is perceived to be motivating; (iii) employees should be familiar with the performance measures; (iv) the level of payments should be high enough and rewards frequent enough. Levels below the median do not generate positive effects; (v) employees should participate in the design of the PRP scheme.


design of incentive schemes effort provision employee involvement motivation performance-related pay 


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Copyright information

© Springer 2006

Authors and Affiliations

  1. 1.Department of EconomicsHelsinki School of Economics, and HECERHelsinkiFinland
  2. 2.The Research Institute of the Finnish EconomyHelsinkiFinland

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