Use Of Bonuses Research Articles

Paying Managers of Complex Portfolios: Evidence on Compensation and Performance from Endowments

Abstract We examine compensation for endowment Chief Investment Officers (CIOs) overseeing portfolios with significant allocations to alternatives. We find widespread use of bonuses and that large endowments with high alternative allocations hire CIOs with stronger backgrounds, pay them more, and have higher pay-for-performance sensitivity. We find weak evidence of a relationship between compensation and future performance. Our results align with contract theory predictions but differ from empirical findings on pension funds. Endowments pay CIOs more, rely more on bonuses, attract more experienced professionals, and have lower turnover than pensions. This suggests more effective talent management compared to politically influenced public pensions.

Determints of CEO Bonus Compensation

Abstract The primary purpose of this study is to explore the determinants of CEO bonus compensation: to examine CEO bonuses and to explore whether or not the independent variables are associated with CEO bonus compensation. For the purposes of this study, a sample of 2,448 CEO bonus compensations across 1,622 firms from 1997 to 2002 was used to test several hypotheses. The dependent variable in this model is the CEO bonus compensation. Bonus is the dollar value of the bonus (cash and non-cash) earned by the named executive officer during the fiscal year. Corporate diversification was divided into two categories; international diversification and industry diversification. Firm performance is measured by both Market-based, Performance (RET) and Accounting-based, Performance (ACE). The results show that the higher the degree of international diversification, and the higher accounting earnings performance, the more CEOs receive in bonuses. In addition, this study found that international diversification is associated with a greater use of bonuses and with a greater reliance on accounting-based, rather than market-based measures of firm performance. The results also demonstrated that CEOs in firms with more investment opportunities will receive higher bonuses than CEOs in firms with fewer investment opportunities and CEOs in larger firms will receive higher bonuses than CEOs in smaller firms.

STRUCTURE AND REQUIREMENTS FOR BUILDING A REGULATION ON BONUSES AT THE ENTERPRISE

This article is devoted to current issues of research on the essence of the regulation on bonuses at the enterprise. The purpose of the study is a detailed study of the structure and analysis of the requirements for building a regulation on bonuses as a means of motivating the staff of the enterprise. The article reveals the essence of the concept of “regulation on bonuses”, “motivation” in terms of personnel management; considered what structure should be in the regulation on premium at the enterprise; the analysis of requirements of construction of a regulation on bonuses is carried out; investigated how the award can act as an incentive to increase the efficiency of the employee. The main objective this study is an analysis of the regulation on bonuses at the enterprise, determining the structure of the formation of bonuses and the study of the basic requirements for the formation and accrual of bonuses to employees of the enterprise for the performance of their professional duties. The use of bonuses to ensure the effective work of the company’s staff is a common method of encouraging employees to work productively. Bonuses are an important means of increasing the material incentives for employees to improve the final results of the enterprise. To reward employees of the enterprise make contributions to incentive funds. As one of the components of the employee’s salary, the bonus is the main form of material incentives for high quantitative and qualitative results of work at the enterprise. The bonus is a flexible and variable part of the salary, which allows to differentiate the income of employees depending on the results of work at the enterprise. The main purpose of the award is to increase the efficiency of the enterprise by encouraging employees to improve results and achieve the goals of the enterprise. A well-organized amount of premium payment will help the company to improve its overall performance and ensure effective competitiveness. Also, bonuses will help to organize employee satisfaction with their work and increase the effectiveness of the goals for the performer.

Bonuses and Promotion Tournaments: Theory and Evidence

AbstractStandard models of promotion tournaments do not distinguish between wages and bonuses and thus cannot explain variation in the use of bonuses. We combine classic and market-based tournament theories to develop a model in which wages and bonuses serve distinctly different roles. We use this model to derive testable predictions which we test employing both a single firm data set and a data set encompassing a large segment of the Finnish economy. Our empirical analysis supports the testable predictions and shows that our theoretical approach better matches the data than alternative theories of bonus determination based on arguments already in the literature.

Postindustrial transformations of administrative approaches to creative motivation

The decisive feature of creative management is the creation of conditions for self-realization, which determines the relevance of the study of the transformational vector of creative motivation for the development of creative capabilities of staff. A significant problem of psychological management approaches to creative motivation is the awareness of the need for continuously updated material incentives for staff. A reward received as a deserved prize may cause its unjustified expectation in the future, and its absence begins to be perceived as an unfair incentive system. Monetary motivation is also not an effective tool for stimulating the creative development of staff, because its positive-motivating effect only manifests itself in the first 48 hours. The introduction of a bonus system as a short-term incentive usually indicates the desire of managers to mechanically control the motivation of employees. The use of bonuses is based on the incorrect assumption that an employee does not fully utilize his own potential, and this leads to a motivated inconsistency between the actual and the possible volume of work. Thus, the system of bonus incentives, not taking into account the complex interweaving of market factors, market conditions, prices, products, competition, can destroy the employee's responsibility for achieving the resultant results. Motivated systems that directly rely on quantitative results of work often target workers to achieve short-term success, ignoring long-term development prospects. The effect of displacement of internal motivation with external motivation is manifested: interest in remuneration displaces interest in creative work. Material incentives appear to be incapable of motivating most of them to a long-term desire for self-improvement, development and achievement of creative results. Job satisfaction, diverse activities that require dedication, self-planning goals, education and training, and participation in management are often more important than attractive wages and bonuses in the form of a bonus. The psychological danger to the head is also the use of established non-material methods of stimulating creativity, which often provoke material expectations from the staff. The newest managerial approaches to creative motivation must mutually coordinate the nonlinear combination of different directions of material and immaterial stimulation, despite their certain contradictory nature. Thus, the motivation of creativity focuses on the psychological self-regulation of the individual, integrating the intellectual, motivational, volitional and emotional components of creative activity.

Performance pay, the marriage market and rising income inequality in Taiwan

Taiwan expanded its college access significantly over the past two decades by converting 2-year junior colleges to 4-year colleges and relaxing entrance standards. The share of college graduates in the 22–24 years old population rose from 12 to 71% between 1990 and 2014. This should have suppressed returns to schooling and lowered household income inequality. Instead, Taiwan’s Gini coefficient rose. We show that rising use of performance pay and positive assortative mating in the marriage market jointly increase the household income inequality by 46.5% between 1980 and 2014. Our results suggest that uneven quality of the most recent cohorts of college graduates led to two sources of rising household income inequality: the increased use of bonus pay which increases residual inequality among college graduates; and matching on unobserved skills in the marriage market which increases inequality among married couples.

An experimental study of the effects of negative, capped and deferred bonuses on risk taking in a multi-period setting

As a response to the financial crisis in 2008, the European bank authorities have adopted new rules for managerial remuneration. These rules are intended to mitigate managerial propensity to excessive risk taking. The purpose of this paper is to examine three prominent recommendations in these remuneration rules: the use of negative bonuses, the use of bonus caps and the use of deferred bonus payment. The paper advances the theory that cognitive frames created by compensation design affect risk-taking behaviour. We conduct a two-by-two within-subject experiment in which 153 students are set an investment task involving two periods. We find higher risk taking with the high variance bonus scheme that contains a negative bonus option. While bonus deferral appears to have no such initial effect on risk taking, it affects risk behaviour in the second period as a response to positive and negative outcomes from the first period. The findings contribute to the theory and practice of bonus system design and the application of contemporary remuneration recommendations in the financial sector.

The bonus as hygiene factor: the role of reward systems in the high performance organization

PurposeThe ongoing debate about the effects of bonuses on managers’ performance and the role of reward systems in organizations has still not led to a unanimous conclusion among academics and practitioners. Those in favor of bonuses state that applying bonuses and putting emphasis on monetary rewards increases productivity and organizational performance, while those against bonuses claim that use of bonuses and monetary rewards leads to counterproductive results. A key question often overlooked in the discussion is: How important is handing out bonuses for an organization to become and stay successful for a longer period of time? This paper seeks to address these issues.Design/methodology/approachThis paper describes the results of research into the characteristics of “high performance organizations” (HPOs) and the role of bonuses and reward systems in creating and maintaining HPOs.FindingsThe research results show that use of bonuses or implementation of certain types of reward systems have neither a positive nor a negative effect on organizational performance. This may be explained by the fact that reward systems are a hygiene factor for an organization. If an organization does not have an appropriate reward system (whether or not including bonuses), it will run into trouble with its employees and have difficulty improving its performance. If it does – a situation which employees expect and consider to be normal – it can start working on becoming an HPO.Originality/valueThe results of this study further the discussion about the role of bonuses.

Tarnished Brass: <i>Is the U.S. Military Profession in Decline?</i>

IN early twenty years after the end of the Cold War, the American military, financed by more money than the entire rest of the world spends on its armed forces, failed to defeat insurgencies or fully suppress sectarian civil wars in two crucial countries, each with less than a tenth of the U.S. population, after over throwing those nations' governments in a matter of weeks. Evidence of overuse and understrength in the military abounds: the longest individual overseas deployments since World War II and repeated rotations into those deployments; the common and near-desperate use of bonuses to keep officers and enlisted soldiers from leaving. Nor is it only the ground forces that are experiencing the pinch. The U.S. Air Force has had to cut tens of thousands of people to buy the airplanes it believes it needs. The U.S. Navy faces such declining numbers of ships that it needs allies to accomplish the varied demands of power projection, sea control, and the protection of world commerce. Why such a disjunction between enormous expenditures and declining capa bility? One factor is that the threats currently facing the United States, many of them building for a generation or more, do not yield to the kind of conventional war that our military is designed to fight. The challenges to global stability are

Effort or timing: The effect of lump-sum bonuses

This article addresses the question of whether lump-sum bonuses motivate salespeople to work harder to attain incremental orders or whether they induce salespeople to play timing games (behaviors that increase incentive payments without providing incremental benefits to the firm) with their order submissions. We find that lump-sum bonuses primarily motivate salespeople to work harder—a result that is consistent with the widespread use of bonuses in practice, but that contradicts earlier empirical work in academics.

Executive Compensation: New vs. Old Economy and the Impact of NASDAQ Crash and Sarbanes Oxley Act

This is a new study which examines whether the determinants and the forms of compensation in new versus old economy US firms are the same over time and if the structure of compensation for executives in both groups changes after the NASDAQ crash and the enactment of the Sarbanes-Oxley act.The results reveal that the new economy executives receive, on average, much more than the executives from the old economy, primarily due to stock options, but in the last few years the difference in compensation between the executives of both groups is decreasing.We find that the NASDAQ crash and the Sarbanes-Oxley act had a significant impact upon the structure of the components of executive compensation in both new and old economy firms. Firms in both groups have reduced the use of stock options and have instead increased the use of bonuses and restricted stocks.We also find that the factors that explain executive compensation in new and old economy firms are generally different, and in the case of the variables that are the same, like firm size component, the intensity of the factors is different.

Analysis of the practice of job evaluation in the metal industry in Turkey

Job evaluation's main aim is to establish a fair wage structure. Its main principle is ‘equal pay for equal work’. ‘Metal Industry Job Grouping System’ (MIDS) has been in the metal industry in Turkey for more than 20 years. The results of the practice of the system were measured by the Gini coefficient. By the findings, the average wages of the job groups are different enough from each other by their job groups in the way the wage of the bigger number job group is higher than the smaller except the job group two in the industry. However, the wages are far from the principle ‘equal wage for equal job’ within the same job itself. In addition, the workers make use of bonuses and social benefits. The effect of social benefits of them on the wage structure is positive within the same job group and negative between different job groups within the same company. Nevertheless, the effect of both bonuses and social benefits on the wage structure is negative between the companies because, between them they are different from each other. Job group and seniority affect the wage structure. Seniority has a socio-psychological self-producing dynamic. The distribution of seniorities within the same job group has negative effects on the wage structure. However, this fact for each worker disappears for the long term since the worker of today who has short-term seniority will be the one of tomorrow who has long-term seniority. Therefore, for each worker, the wage structure gets closer to the principle ‘equal wage for equal job’ within the same job group itself over time.

Ascertaining the effects of employee bonus plans

The effect of employee bonus plans may be difficult to ascertain empirically if the size of bonus is not large enough in magnitude compared to base salary. This study makes use of data from Taiwan where employee bonus payments are not only mandated by law but are quite often several times a typical employee's annual base salary. The use of this unique data allows one to empirically observe interesting relationships difficult to ascertain from traditional datasets. Evidence is found that the performance of bonus-paying firms is related to the size of bonuses paid, both before and after analysis, and across industries. In general, evidence seems to indicate that bonus-paying firms tend to achieve higher productivity, better cost control and asset utilization, and share price returns. However, there may be evidence that marginal returns to employee bonuses are decreasing, reflecting the use of bonuses as substitutes for cash pay in order to attract employees in short supply. These results can serve as useful benchmarks for future studies.

Optimal Contracting with Subjective Evaluation

This paper extends the standard principal–agent model to allow for subjective evaluation. The optimal contract results in more compressed pay relative to the case with verifiable performance measures. Moreover, discrimination against an individual implies lower pay and performance, suggesting that the extent of discrimination as measured after controlling for performance may underestimate the level of true discrimination. Finally, the optimal contract entails the use of bonus pay rather than the threat of dismissal, hence neither “efficiency wages” nor the right to dismiss an employee are necessary ingredients for an optimal incentive contract.

ORGANIZATION-WIDE BROAD-BASED INCENTIVES: RATIONAL THEORY AND EVIDENCE.

Despite the widespread use of incentive pay, there is limited evidence about what factors influence its organization-wide, broad-based application. This study uses data from three sources and multiple levels, including a unique data set of the total compensation of individual employees in 104 firms over a four year period (1997-2000), to theoretically and empirically examine the use of bonuses and stock options in organization-wide applications. We examine the efficacy of three main rational theories, principal-agency, positivist agency and contingency theories, which are based on the premise that incentives are related to performance. At the individual level we identify two determinants: type of job and level within the hierarchy and four determinants at the organizational level: performance, risk, size, and strategy. Our results indicate that total variance in variable pay is evenly split between individual-level factors and organizational factors. However, empirically, the factors derived from the three theories provide a limited explanation for the variation in the use of broad-based incentives within and across organizations.

Job Characteristics and the Form of Compensation

In this paper we introduce a way to systematically organize the choice between different forms of compensation based upon observable job characteristics. Secondly, we explore the determinants of compensation based upon questionnaire responses concerning job characteristics and methods of pay contained in the Quality of Employment Survey (QES), the National Longitudinal Survey of Youth (NLSY), the Panel Study of Income Dynamics (PSID), and the Current Population Survey. The main conclusion is that there is no single model of the employment relationship that can explain the variation in compensation form. We draw upon both agency and incomplete contract models to study the interplay between job characteristics and compensation. Specific results include a) the number of tasks seems to be associated with the use of incomplete contracts; b) jobs with high power incentives (piece or commission rates) tend to be associated with more worker autonomy and fewer tasks performed than hourly paid or salary jobs; c) tight labor market conditions tend to be associated with increased use of bonuses and promotions.

Labor Economics and the Psychology of Organizations

This essay is a discussion of how economists are attempting to understand institutions within the organizations of the labor market. The institutions and issues discussed include mandatory retirement; discontinuous jumps in wages; pay compression; rights of tenure; up-or-out hierarchies; timing of raises, promotions and evaluations; the existence of partnerships; the use of bonuses vs. penalties; and pay as a motivator.

Diversification Strategy, Performance Criteria, and Compensation For Top Managers in the U.S. and Japan: Two Studies.

The paper compares results of two studies examining the potential for links between product diversification and selected human resource management elements in 46 American and 21 Japanese firms. The firms were categorized into high, medium, and low diversifers. The studies investigated whether the type of performance criteria, e.g., financial, productions marketing, personnel related, and use of bonus as part of compensation, varied across firms in the different diversification groups. The paper discusses similarities and differences in the two studies and suggests areas for future research.

Job‐Discrimination and the Use of Bonuses

The American Journal of Economics and SociologyVolume 32, Issue 4 p. 351-366 Job-Discrimination and the Use of Bonuses Raymond Jackson, Raymond Jackson Southeastern Massachusetts University North Dartmouth, Mass. 02747Search for more papers by this author Raymond Jackson, Raymond Jackson Southeastern Massachusetts University North Dartmouth, Mass. 02747Search for more papers by this author First published: October 1973 https://doi.org/10.1111/j.1536-7150.1973.tb02430.xAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume32, Issue4October 1973Pages 351-366 RelatedInformation