Evidence indicating that performance-related pay puts intolerable pressure upon workers has emerged from joint research between Washington University in St Louis and Denmark’s Aarhus University.


In a comprehensive study blending medical and remuneration data with demographic research, the Washington and Aarhus teams found that, typically, once firms switch to performance-based pay policies, the number of staff seeking medicinal relief for anxiety and depression rises by 5.7%, over an existing base rate of 5.2%.


According to study co-author Lamar Pierce – professor of organisation and strategy at Washington University’s Olin Business School – the total number of affected staff is almost certainly far higher than those figures suggest.


“This is the tip of the iceberg, and we don’t know how deep that iceberg goes,” he said in a Washington University statement on the project. [1] “If you believe that the generation of significant depression and anxiety requiring medication represents a much broader shift in overall mental health, it’s probably a much bigger effect in terms of people.”


In the medical part of their study, the teams focused on workers who had been prescribed benzodiazepines such as Xanax, or selective serotonin reuptake inhibitors (SSRIs) such as Zoloft. Danish government data covering almost 320,000 full-time workers across 1,309 companies showed that staff in firms that had implemented pay-for-performance policies were 5.4% more likely to use those treatments.


Two further findings stand out:


i) women are leaving their jobs more often than men after their firms make the switch to performance-related pay, and


ii) age is a key differential.


Pierce explained: “Basically, older workers seem to be driving all of this effect. One, it’s harder for them to move, so they have less labour mobility. And, two, they have less flexibility: learning new roles, adapting to change – they have more fully-formed preferences at this point.”


The rise in benzo and SSRI prescriptions, he noted, falls “almost all among the older workers”. For workers aged 50 and over, it’s almost double: 8.9% above base rate. “If this is reflective of a broader increase in stress and depression in employees,” said Pierce, “the costs are very high.”


From a corporate leadership perspective, are they too high for performance-based pay schemes to be sustainable?


The Institute of Leadership & Management head of research, policy and standards Kate Cooper says: “First of all, anything that appears to increase stress and anxiety at work has to be taken very seriously. We’re campaigning so hard for improved awareness of, and support for, mental health in the workplace. If the very practices embedded within organisations are contributing to some sort of decline in people’s wellbeing, then those company initiatives and any wider mental-health campaigning will effectively cancel each other out.


“Secondly, we need to examine the extent to which performance-related pay motivates someone, or encourages them to try that much harder. Based on what I’ve seen throughout my career, those effects vary enormously from one individual to the next. Having been part of such schemes myself, I’ve found that people generally respond to them in one of two ways: either they work only to the things that are being measured, primarily because those factors will have the most direct impact upon their pay; or they will take no notice of the policy whatsoever and just carry on doing what they’ve always done, in the way they’ve always done it.”


Cooper notes: “It’s incredibly difficult to put measurable benchmarks in place a year or so before their effectiveness can be properly evaluated. As we know, business environments and other circumstances can change significantly during the measuring period. So you may have the added administrative burden of revisiting the objectives, tweaking them as appropriate and explaining the rationale behind the changes. Given all those variables, I can totally understand why the stress on the individuals concerned will ratchet up – especially among those who really take the scheme to heart and absorb its requirements, to the point where it influences their behaviour on a daily basis.”


She points out: “Managers who are in charge of these schemes will have much to think about, and look out for, as their team members strive to align themselves with the relevant stipulations. As a matter of personal pride, staff will care deeply about the amount of money they will be able to earn under the new rules. Alongside its role as a signal of value and esteem, pay is a critical determinant of household management, holidays, disposable income and the timely settlement of bills. So the totemic importance that the pay scheme assumes for many employees will make it emotionally harder for the managers concerned to make decisions that will have a significant impact upon the lives of their staff.”


Cooper adds: “I’m sure that there are better ways to a) inspire staff to deepen their contribution to an organisation, and b) recognise and reward any subsequent increase of effort. As it stands, performance-related pay seems like a very crude instrument – particularly in light of the adverse impacts that the Washington-Aarhus study highlights.


“However, one question I would have for the researchers is whether they attempted to gauge the appetite for learning among those under-pressure older workers. As our Untapped Talent report stressed, there is ample scope for learning to continue well into employees’ careers – and I would regard development as a key asset for enabling older staff to sharpen their awareness of new work styles, technological trends and any other factors that will help them keep their minds fresh.”


For further insights on the themes raised in this blog, check out the Institute’s resources on managing performance and delivering outcomes


Source ref: [1]


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