Workplace Pay Policies and Workers’ Behavior : Does Context Matter?

Workplace pay policies (WPP) and performance-related pay practices (PRP) are considered to be the principal means of extrinsic worker motivation available to managers. Through firm-level analysis of a sample of around 2,500 Italian manufacturing firms, this study confirms the existence of significant relations between WPP and workers behaviour (WB). But at the same time they suggest that generalized interpretations should be avoided, because the relations are highly context-specific and labour market institutions play a relevant role. In fact, WPP based on variable PRP not bargained with the unions are associated with low levels of absenteeism, while variable PRP bargained with the unions are instead associated with a lower level of turnover and a higher level of absenteeism. Moreover, wide pay differentials between blue-collar and white-collar workers are associated with higher levels of absenteeism, and they maintain high significance regardless of the simultaneous presence of variable PRP and high wage levels, while with respect to turnover they are associated with higher rates of quits only if interacted with the unbargained variable PRP.