You are hired by the Fair Work Commission Australia as a consultant to examine issues relating to pay and performance. Your task is to provide a report detailing findings from the economic literature on the effectiveness of pay for performance, and how performance should be evaluated based on incentive pay.
In the economic literature, the Efficiency Wage Theories focus exclusively on the relationship between pay and performance. The Efficiency Wage Theories maintain that firms should offer their employees a wage that is above the market clearing rate. Paying employees a wage premium raises productivity, workplace cohesiveness, employee responsibility and loyalty, and reduces shirking. Conversely, a wage that is below the prevailing market rate can contribute to employee dissatisfaction and other negative attitudes (e.g. outrage and a desire for revenge), and ultimately a high turnover.
You are hired by the Fair Work Commission Australia as a consultant to examine issues relating to pay and performance. Your task is to provide a report detailing findings from the economic literature on the effectiveness of pay for performance, and how performance should be evaluated based on incentive pay.
