How performance-related pay affects our mental health
Some jobs are stressful by nature, but others are made more difficult because of other factors, like bad bosses, heavy workloads or low pay.
For some workers, the uncertainty of pay causes more stress than the job itself — especially if they’re paid depending on how they perform.
What is performance-related pay?
Many organisations use performance-related pay (PRP) structures to incentivise people to work harder.
As the name suggests, performance-related pay is compensation that is tied to an employees’ contributions to a company. So if someone meets their target or exceeds it, they’ll potentially earn more than a worker who doesn’t. It’s a strategy often found in sales jobs, where an employee may be paid depending on how much of a product they sell.
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Studies show that this kind of pay strategy can boost competitiveness and performance, but new research suggests it may be a double-edged sword. A study by the University of Aberdeen has found that performance-related pay, including pay on commission, can have a serious impact on our health.
How performance-related pay affects our health
Not only does it increase stress and lower job satisfaction, it has been linked to mental and physical health problems, including heart attacks.
And with our health linked to how productive or happy we are at work, it’s possible that performance-related pay may actually undermine how successful we are at work.
“Chronic stress in PRP employees may be due to the need to put in more effort at work, work under time or performance target pressure, or stress associated with an uncertain income stream,” says Dr Daniel Powell, a study co-author at the University of Aberdeen’s Institute of Applied Health Science.
“Regardless of the causes, chronic stress may exacerbate health issues by adding strain onto physiological systems or leading to unhealthy coping mechanisms such as alcohol and drug use.”
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For the study, the researchers examined performance-related pay workers for various markers of stress, including blood pressure and levels of fibrinogen, a protein that is associated with chronic stress. They found that these employees had higher levels of stress than workers on ordinary salaries and as a result, were at risk of heart disease and poor mental health.
Professor Keith Bender, SIRE chair in economics at the University of Aberdeen Business School, says the study provides a clear picture of the impact of performance-related pay and health.
“Our study provides evidence for physiological wear and tear in performance-related pay workers and is consistent with previous research showing they are more likely to have poor health, including self-reported mental health issues and cardiovascular health issues,” he says.
“For the first time, we also show that PRP employees — particularly men — have higher blood pressure and higher levels of fibrinogen which are closely associated with chronic stress.”
Does performance-related pay really benefit employers?
According to a IZA World of Labor study, performance-related pay may boost a company’s bottom line if the design of the scheme is appropriate and workers are supported psychologically.
However, these schemes can backfire. Performance-related pay can lead to unwanted behaviour among employees or unfair pay distribution, which can impact morale and job satisfaction. Also, factors outside of an employee’s control — such as the economy — can impact their performance at work.
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Finally, it’s undeniable that our health and our work are intricately connected and so any adverse effects of performance-related pay shouldn’t be ignored. Ultimately, a highly competitive environment which promotes physical strain and mental stress may lead to more problems.
“Our results indicate the use of performance-related pay contracts may have unintended consequences for employee health impacting on employee wellbeing and long-term productivity in the workforce,” Bender adds. “With this in mind, it's important for firms to consider the potential impact on their employees and implement policies to support their well-being.”
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