Economic literature on the effectiveness on the effectiveness of pay for performance, and how performance should be evaluated based on incentive pay

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You are hired by the Fair Work Commission Australia as a consultant to examine issues relating to pay and performance. Your task is to provide a report detailing findings from the economic literature on the effectiveness on the effectiveness of pay for performance, and how performance should be evaluated based on incentive pay.

In the economic literature, the Efficiency Wage Theories focus exclusively on the relationship between pay and performance. The Efficiency Wage Theories maintain that firm should offer their employee a wage premium raises productivity, workforce cohesiveness, employee responsibility and loyalty, and reduces shirking. Conversely, a wage that is below the prevailing market rate can contribute to employee dissatisfaction and other negative attitudes (eg outrage and a desire for revenge), and ultimately a high turnover.
1. You should aim to think critically and write originally.
2. A key component of the assessment of the assignment will be based on the ability to explain your answers using the economic concepts and theory discussed in this unit. You will be rewarded for linking the theory with a real life example.

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