How much of a bonus should employers give?
Using ten waves (1998-2007) of the British Household Panel Survey (BHPS), this paper investigates the ceteris paribus association between the intensity of incentive pay, the dynamic change in bonus status and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that job utility rises only in response to 'generous' bonus payments, primarily in skilled, non-unionized, private sector jobs. Revoking a bonus from one year to the next is found to have a detrimental impact on employee utility, while job satisfaction tends to diminish over time as employees potentially adapt to bonuses. The findings are therefore consistent with previous experimental evidence, suggesting that employers wishing to motivate their staff should indeed "pay enough or don't pay at all".
Source: "Pay Enough, Don’t Pay Too Much or Don’t Pay at All? The Impact of Bonus Intensity on Job Satisfaction" from IZA Discussion Paper No. 4713, January 2010
Previously I posted "Predictably Irrational" author Dan Ariely asking: Do massive bonuses actually cause *poor* performance?
Dan Ariely's new book is The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home. Haven't read it yet, so I can't really recommend it but I did enjoy Predictably Irrational.
Related posts:
Do the emotions related to how you received money affect how you spend that money?
Does money change what we think is fair?
Here's how many jobs you'll have in your life.
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