Performance Pay and Mental Health: Differences by Pay Scheme

ABSTRACT Anxiety and depression contribute to billions of dollars of lost productivity each year. This work is the first to examine the impact of performance pay on self‐reported measures of anxiety and depression in either the U.S. or Europe, using typical U.S. survey data. It finds no significant impact of performance pay overall but finds that stock options are associated with decreased rates of anxiety and depression, while bonuses are associated with increased rates of anxiety and depression. The heterogeneity indicates a need for further research into the mechanisms by which performance pay impacts mental health.