Abstract

Linking worker compensation to output is seen as a principal method of alleviating agency problems faced by firms. An unambiguous prediction derived from theories of performance related pay is that their implementation will lead to an increase in worker wages. This has implications for wage differences by group membership. For example, if wage differences reflect discrimination in wage setting then linking pay more directly to objective performance has the potential to reduce these gaps. In this sense, one might expect performance pay to reduce gender earnings differentials. However, recent UK evidence suggests a widening effect that reflect gender differences in access to performance pay, this also fits with earlier US evidence. This paper returns to this issue using detailed longitudinal data which allows us to track receipt of performance pay over a 25-year period. Beyond demonstrating the effect of performance pay on gender wage differentials, we explore how within household specialisation and child responsibilities, in particular, influence performance pay receipt and serve to widen the gender wage gap.