More recently, both labor economists and psychologists have
suggested that PFP not only incentivizes and controls but also acts
as a sorting device in identifying, attracting, and retaining
employees with desirable attributes (Cadsby et al., 2007; Gerhart
and Rynes, 2003; Jensen, 2003; Lazear, 2000). Jensen (2003) argued
that more productive employees have different compensation
preferences than their less productive counterparts. The former
prefers PFP while the latter opts for more fixed forms of
compensation. In their laboratory study, Cadsby et al. (2007)
found a similar result. They concluded that the impacts of PFP are
twofold: it motivates employees to exert greater effort (incentive
effect) and it attracts more as opposed to less productive
employees (sorting effect). Lazear (2000) further claimed that in
a workforce, heterogeneity is a primary reason for using PFP.
Greater homogeneity of performance outcomes can be achieved
through PFP. Consequently, more productive workers are retained
while less productive workers either quit or are replaced over time.
The sorting effect of PFP is consistent with the idea of P–O fit