Marginal Revolution links to a recent paper confirming that performance pay is linked to better performance, and wonders why it took the world so long to figure this out. Commenters note that unions tend to be opposed to this in every form. My experience: I recently had a Unionism 101 discussion about this very issue with my favorite Union Guy, who works for a large, powerful Colorado utility company. He reports that the company periodically attempts to introduce pay-for-performance, not as a replacement for standard hourly pay, but as an alternative option for workers who might like to work harder for more money; the union firmly opposes this. I (naturally) suggested that creating more options for workers would seem to be a good thing for everyone involved, something the union ought to stand behind; Union Guy's response was that the Company uses pay-for-performance options strategically, to justify increases in the workload of regular, by-the-hour employees. In other words, harder-working pay-for-performance employees blow the curve for those who'd like to keep on doing the standard amount of work for the standard amount of pay.