PAYMENT BY RESULTS SYSTEMS - BRITISH EVIDENCE

A model of the firm's decision to adopt a payment by results system is developed and tested with British establishment data. The model maint ains that payment by results systems have larger set-up costs but lowe r supervision costs than time rates, particularly for short-tenure wor kers who are not well motivated by deferred compensation. The evidence confirms the model's predictions by showing that payment by results s ystems substitute for supervision and that larger establishments and t hose with shorter-tenure workers are more likely to adopt payment by r esults. In addition, both the presence of a payment by results system and the new adoption of such a system are shown to exert a positive in fluence on measures of establishment performance.