The Impact of Performance Payments on Job Satisfaction - Studied Over Time

By establishing an ordered probit regression model and using data from the British Household Panel Survey, I investigate whether the increasing amount of workplaces related to individual performance payments can be attributed to a positive trend in the impact of performance payments on overall job satisfaction over time from 2001 until 2009. The Agency Theory predicts that implementing performance-related payments should lead to higher risk exposure and an increased effort, i.e. a higher productivity. In return, workers receive a higher wage. My findings cannot confirm a trend, but can confirm the previous literature by finding an insignificant impact of performance payments on job satisfaction, while the Agency Theory would predict a negative relationship as the wage is held constant. My research also provides information about other determinants of overall job satisfaction. According to the data, the most important factor is the worker`s age. Job satisfaction decreases until the mid-forties and then increases, confirming the presence of a midlife crisis. Also important is whether one has a job in the private sector or not. Working for a private firm decreases overall job satisfaction, maybe because of a higher risk exposure of the employees and/or less beneficial business objectives in comparison to public firms or charity organizations. I further find support for the common assumption that women and married couples are more satisfied with work