Pay for Performance Does Not Always Increase Performance

Pay for performance can have a positive or a negative influence on actual performance. The aim of this study was to give an explanation for this contradiction. We demonstrated that the variability of the payment can act as a stressor. According to the transactional model of stress, the influence on performance depends on the subjective interpretation of the variability as challenge or threat. Therefore we manipulated the degree of variability. The data showed decreasing performance for participants who preferred less-variable payments. They performed better under a less-variable rather than more-variable payment. The participants who preferred more-variable payment schemes showed the opposite pattern. These participants showed a higher performance under a more-variable rather than less-variable payment scheme.