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Title:Incentive Effects of Bonus Payments : Evidence from an International Company PDF Logo
Authors:Engellandt, Axel
Riphahn, Regina T.
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1229
Abstract:This study uses panel data describing about 6,500 employees in a large international company to study the incentive effects of performance related pay. The company uses two performance related remuneration mechanisms. One is an individual "surprise" bonus payment. The other is a more structured system, where part of the salary is determined by individual performance evaluations. We hypothesize that effort is higher in departments where (i) performance evaluation results are more spread out, (ii) person-specific performance evaluations are more flexible over time, (iii) surprise bonuses are used more frequently. These hypotheses are tested using days of absence and overtime work as effort indicators. The tests yield that hypotheses (ii) and (iii) are supported, and that (i) cannot be tested reliably due to possible simultaneity bias in our data. We investigate and confirm the robustness of these findings. They suggest that surprise bonus payments and flexibility in the evaluation of individual performances over time provide effective incentives for employee effort.
Subjects:bonus
merit pay
pay for performance
worker effort
social status
mobility
absenteeism
overtime
JEL:C25
J33
M50
J41
J24
M12
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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