Pay for performance potentially contributing to mental health crisis

The data suggests monetary incentive approaches may be costing corporations more money than the supposed benefits are worth.

A work culture study recently published in the journal Academy Of Management Discoveries establishes a correlation between employers adopting pay-for-performance methods and employees developing mental disorders.

Proceeding with consideration of demographic, over 1,000 firms and prescription data of over 300,000 full-time employees ages 18-65, the study revealed a 4 to 6% increase in anti-depressant and anxiety medication usage when pay-for-performance was enacted (base rate of 5.2 to 5.7%.)


Follow Ladders on Flipboard!

Follow Ladders’ magazines on Flipboard covering Happiness, Productivity, Job Satisfaction, Neuroscience, and more!


The researchers of the study report, “This change is strongest in low-performing and older workers. We also find that workers select in and out of P4P firms based on mental health considerations, which implies that mental health effects influence turnover.”

Older workers and women seemed to be particularly affected as female workers were found to depart from firms that switched to P4P more than male workers.

The data suggests monetary incentive approaches may be costing corporations more money than the supposed benefits are worth. “If this is reflective of a broader increase in stress and depression in employees, the costs are very high,” said study co-author Lamar Pierce

Is providing fiscal motivation worth its impact on wellness?

The fruits of P4P

A 2009 survey of over 138 organizations motions that P4P can be exceedingly beneficial if done correctly. According to data uncovered by Sibson, for true-effective pay for performance tactics, corporations need to initiate these key components:

  • Higher wage increase for top performers
  • Give managers access to detailed rating and compensation data
  • A clear demarcation between compensation for high performers and really top performers

Jim Kochanski, who is the Senior Vice President at Sibson, makes a compelling point about the way pay for performance can diminish “entitlement mentalities” amongst workers.

Author Lainie Petersen addresses another promising attribute that accompanies pay for pay performance tactics and that is the way it keeps your talented workers around.

The more skilled the performer the more likely they will be approached by other firms. If you present an incentive to keep them around based on merit and their particular skills they will just as likely hang around to capitalize on their acumen.

Unpacking monetary incentives

Whether through income bonuses, commissions or profit shares, does pay for pay actually present a substantial incentive for increased productivity? The contrary view seems to have legs.

An argument can be made about the way P4P disrupts morale and teamwork. Bizfluent reports, “Workers attempting to reach personal goals sometimes are less willing to be team players. They might be hesitant to provide assistance to struggling coworkers because they view this as wasting valuable time that would be better used to improve their own productivity.”

In addition to expectations applied to employees, the very kind that the previously mentioned study from the journal Academy Of Management Discoveries, believes to contribute to a workplace mental health crisis, supervisors are also met with the pressure to objectively determine which performances are outstanding enough to earn monetary rewards. This isn’t always so cut and dry.

Michael Beer, a professor at Harvard Business School, was emboldened in his belief that P4P plans typically backfire with his study that saw several firms drop them within three years of adopting them, stating:

“Financial rewards in a fast-changing business environment could undermine a company’s ability to build trust and commitment unless management and employees have an honest discussion of their mutual expectations, they added. This is “very difficult to do.”


You might also enjoy…

CW Headley|is a reporter for Ladders and can be reached at cheadley@theladders.com.