Pay for performance (P4P) systems—which are “widely used by firms to both motivate employee effort and attract the best talent”—have been linked to increased levels of depression and anxiety. From a SET perspective, it is not surprising that focusing on financial well-being reduces attending to other important forms of well-being.
From the Abstract: This paper provides evidence linking pay-for-performance (P4P) adoption by employers to long-term and serious mental health problems in employees. Matching survey-based data on P4P adoption by 1,309 Danish firms with wage, demographic, and medical prescription data of 318,717 full-time employees, we find a four to six percent increase in the usage of anti-depressant and anti-anxiety medication after firms adopt P4P. This change is strongest in low-performing and older workers.
Dahl, M.S., and Pierce, L. (2019 in press) Pay-for-performance and employee mental health: Large sample evident using employee prescription drug use. Academy of Management Discoveries.