Employers across the country have been putting a lot more thought into their compensation programs in recent years, partially responding to the more-competitive market for talent, but also to increasing pay transparency among workers. Many have landed on a pay-for-performance model, which seems logical enough–at first glance.

A first-of-its-kind study from researchers at Washington University in St. Louis and Aarhus University in Denmark, found that a company that switches to a pay-for-performance process (which includes things like bonuses, commissions, piece rates, profit sharing, individual and team goal achievements or some other configuration) will also see a rise in the number of employees using anxiety and depression medication.

Researchers found that the number of employees medicated for anxiety and depression rise by 5.7 percent over an existing base rate of 5.2 percent. What's more, the effect was more pronounced in older workers, who experienced an 8.9 percentage increase over the base rate in prescriptions for benzodiazepines such as Xanax or selective serotonin reuptake inhibitors such as Zoloft. This could be because older workers lack as much labor mobility as younger ones, although it could also be due to less openness or resilience to such a change on their part compared to the younger, still developing workers.

In addition, workers taking benzos or SSRIs had a 5 to 9 percent increased likelihood to leave that company in a given year, regardless of gender or age, and women were more likely to leave than men.

But the kicker? The actual number of employees affected is "almost certainly much higher," according to the study.

"This is the tip of the iceberg, and we don't know how deep that iceberg goes beneath," says study coauthor Lamar Pierce, professor of organization & strategy and associate dean for the Olin-Brookings Partnership at Olin Business School.

Pierce, who has focused much of his Olin research on productivity, wellness and pay systems in organizations, added, "If you believe that the generation of significant depression and anxiety requiring medication represents a much broader shift in overall mental health, it's probably a much bigger effect in terms of people."

And that can cost companies big-time, although study coauthors said that there's no way to estimate from the data used in the study just how much that cost amounts to. However, as Pierce points out, the study only accounts for workers who sought and received medical help through medication. Just a third of people in the U.S. actually look for treatment for mental health problems and many get alternative care rather than medication.

"But these types of mental health problems are incredibly costly to both the individual and firm," Pierce says. "If this is reflective of a broader increase in stress and depression in employees, the costs are very high."

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How does performance pay affect workers' mental health?

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