The rise in cases of employees being incapacitated due to mental health concerns such as fatigue, depression, sleep disturbances, and burnout has seen a significant uptick in recent years. This worrying trend, particularly pronounced within the corporate sector, has yet to escape the attention of Professor Sascha Alavi of the Sales Management Department (SMD). His critical observation of societal trends, particularly in corporate environments, led him to collaborate with Dr. Kim Linsenmayer, his former PhD student, and Professor Johannes Habel from the University of Houston. Their research, published in the Journal of Marketing, sheds light on the detrimental impacts of performance-based pay schemes on employees’ health, a finding reported by Rubin, the science magazine from RUB.

The trio conducted a field experiment in a medium-sized German company that operates in the consumer goods, tools, and services sector, catering to the construction and automotive industries. Over a year, they observed the company’s shift from a remuneration model dominated by variable pay (80%) to one primarily comprised of fixed income (80%), analyzing data from over 800 employees. Their time series analysis unveiled a direct correlation between heightened performance incentives and increased absenteeism due to sickness.

Dubbed the “J-effect,” this phenomenon outlines an initial boost in employee performance with the increase in variable pay, fueled by the motivating potential of sales commissions and bonuses. However, the data also revealed a subsequent rise in stress levels, leading to more sick leaves and diminished performance. Professor Alavi explains that when variable pay constitutes around 30% of the total remuneration, the pressure to perform spikes, inversely affecting performance. The research underlines the negative health consequences of variable pay schemes, highlighting their potential to foster stress and insecurity, thereby exerting undue pressure on employees.

Further investigations by Alavi and his team validated the J-effect and contributed to the broader understanding of stress theories. A survey encompassing 400 sales personnel from various companies and sectors indicated that a higher proportion of variable pay correlates with increased emotional exhaustion. Symptoms such as fatigue, feeling drained, burnout, frustration, or tiredness at the end of a workday or week were commonly reported when variable pay exceeded 30% of the total compensation.

The study also differentiates between employee groups, noting that the impact of performance incentives is not universally negative. Certain individuals showed greater resilience, particularly those with specific personal, mental, and social competencies or extensive experience. Alavi pointed out that employees who have consistently performed well or possess considerable work experience face less difficulty dealing with performance pressure. Furthermore, maintaining positive relationships with supervisors and team members can significantly mitigate the adverse effects of increased pressure.

In essence, the research not only elucidates the harmful health implications of performance-based remuneration schemes but also offers practical insights and recommendations for management. Understanding employee resilience factors and fostering supportive work environments can be crucial in mitigating the negative impacts of performance pressure.

More information: Sascha Alavi et al, Variable Compensation and Salesperson Health, Journal of Marketing. DOI: 10.1177/0022242921993195

Journal information: Journal of Marketing Provided by Ruhr University Bochum