Performance-based pay can affect mental health

When companies introduce some kind of performance-based pay, the number of prescriptions for depression and anxiety medication for employees rises. And women flee to other jobs more often than men when they fear for their mental health. This is the result of new research from Aarhus BSS.


There can be many reasons why companies move from a fixed remuneration of their employees to a more competitive salary system such as pay-for-performance. But one thing is certain; it can affect the employees. In many cases, it affects the employees negatively and causes an increased risk of depression, stress and anxiety.

This is the result of a new extensive study conducted within 1,309 Danish companies and their 318,717 full-time employees. In the study, the researchers compared data regarding salary, demographics and medical prescriptions between 1996 and 2006.

The study focuses on companies that changed their remuneration system to pay-for-performance within this period. Here the salary completely or partly depends on how much an employee has sold, created, developed or in another way performed in their job.

"These mental illnesses have great consequences for both the employees personally and the companies. Not to mention the costs for society as a whole"

Michael S. Dahl - Professor, Department og Management, Aarhus BSS

2,000 additional people on prescriptions

Among the employees who experienced a transition to pay-for-performance, this meant a four to six per cent increase in the use of medication against anxiety and depression compared to employees in other companies. In absolute figures, this constitutes around 2,000 more patients with prescriptions against anxiety and depression.

“We can see that the implementation of pay-for-performance affects the mental health of quite a lot of employees.  Employees above the age of 50 are particularly vulnerable. This might be because older employees are less susceptible to organisational changes in the job, and that they have less job mobility and therefore have a harder time finding another job,” says Professor Michael S. Dahl from the Department of Management at Aarhus BSS . He developed the study together with professor Lamar Pierce, Olin Business School, St. Louis, USA, and the findings have been published in the academic journal Academy of Management Discoveries.
“The study also strongly suggests that employees with a tendency towards depression or anxiety will look for another job when their company implements pay-for-performance. Women are particularly likely to look for another job, whereas men more often stay in the job,” Dahl says.

The tip of the iceberg

The study is unable to prove any causal relationship between the implementation of pay-for-performance and an increased use of antidepressants among employees. In addition, the reasons for why companies decide to implement pay-for-performance and for why employees use prescription-only antidepressants can differ significantly. However, the study provides evidence that there is a significant relationship between the implementation of performance-based pay and the use of antidepressants among the employees, which is in accordance with other less comprehensive studies.

“What’s worrying is that this is presumably only the tip of the iceberg. One thing is going to your doctor and asking for a prescription for depression and anxiety medication. But it’s also possible to try to handle this on your own through self-medicating or sessions with a psychologist. Naturally, we can’t measure this in the study,” Dahl says.

“However, we know that these mental illnesses have great consequences for both the employees personally and the companies. Not to mention the costs for society as a whole. We know from other studies that pay-for-performance can have a positive effect, but our study shows that the companies’ management need to be aware of the mental consequences that can follow,” Dahl points out.


Michael S. Dahl, Lamar Pierce: Pay-for-Performance and Employee Mental Health: Large Sample Evidence Using Employee Prescription Drug Usage. Academy of Management Discoveries.

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