Stress in performance-related pay: the effect of payment contracts and social-evaluative threat

There is some evidence that performance-related pay (PRP) leads to higher levels of stress as it incentivizes employees to work harder for longer. However, PRP in the workplace also typically involves performance monitoring, which may introduce an additional source of stress via social-evaluative threat (SET). The current study examined the effect of PRP on stress while varying the level of performance monitoring/SET. Using an incentivized mixed design experiment, 206 participants completed a simulated work task after being randomly allocated to either a PRP contract (0.20 pound per correct response, n = 110) or minimum-performance fixed payment contract (5 pound for >= 10 correct responses; 0 pound for <10, n = 96) condition. All participants completed the task during a high SET (explicit performance monitoring) and low SET (no monitoring) condition. Subjective and objective stress were measured through self-report and salivary cortisol. High SET led to higher levels of self-reported stress but not cortisol, whereas there was no effect of the payment condition on either self-reported stress or cortisol. A statistically significant interaction revealed that high SET-fixed payment participants were significantly more stressed than those in the high SET-PRP group. Estimating the regressions separately for high- and low-performing individuals found that the effect was driven by low-performing individuals. These results suggest that fixed payment contracts that have a minimum performance threshold and which include performance monitoring and SET can be more stressful than traditional piece-rate PRP contracts. The current study suggests that incorporating performance monitoring and SET into payment contracts may affect the well-being of employees.