Evaluation of Subjectivity in Incentive Pay

Abstract

The study aims to investigate the determinants of subjective bonus payouts in the UK financial industry. Bonuses are increasingly linked to wider business goals, such as quality and customer service, firm reputation and employee hiring and retention policies, thus replacing the traditional focus on output or profit measures. A new conceptual work on subjectivity is used to evaluate these bonus practices. Results indicate that a variety of contextual factors have influenced the firms to make greater use of subjectivity in bonus payouts. Of these, organizational interdependency appeared to be the most forceful factor, followed by management’s strategic focus, long-term investment in intangibles, economic constraints, performance target difficulty, and competition. The analysis suggests that subjectivity acts as a mechanism that aligns the interests of individual employees with the firm’s performance goals. The study also draws attention to the costs of subjectivity in performance evaluation.