The extent and determination of performance related pay systems in Scandinavian countries

Abstract

The incidence of performance related pay (PRP) varies substantially across countries. Using individual worker level data, it is the intention of this paper to examine initially the extent to which institutional factors across Denmark, Sweden and Finland affect the coverage of Performance Related Pay. It then identifies the types of workers and firms that choose this form of payment system within each country. The initial findings suggest that institutional factors within countries play a role in determining the extent to which the adoption of PRP systems varies across countries, although this is far clearer for Finland than between Denmark and Sweden for example. The results also show that there are significant differences across Scandinavia in terms of the workers who choose PRP systems and the firms who adopt them. Strong support is found for the previously identified and positive relationship between firm size and use of PRP.