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Bonus Payments, Hierarchy Levels and Tenure: Theoretical Considerations and Empirical Evidence

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Author Info

  • Grund, Christian

    ()
    (RWTH Aachen University)

  • Kräkel, Matthias

    ()
    (University of Bonn)

Abstract

Using data on executive compensation for the German chemical industry, we investigate the relevance of two theoretical approaches that focus on bonuses as part of a long term wage policy of a firm. The first approach argues that explicit bonuses serve as substitutes for implicit career concerns. The second approach claims that bonuses are used as complements to an executive's internal career. Our data show that bonus payments are mostly prevalent among senior executives at higher hierarchy levels and rather for management jobs than for jobs in research and development. This is true for the whole chemical sector as well as for single large corporations. The findings indicate that the two theoretical views are not mutually exclusive, but are both relevant in practice.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5284.

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Length: 29 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5284

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Keywords: tenure; hierarchy; chemical sector; bonus payments; wage policy;

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References

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  1. Pedro Ortín-Ángel & Vicente Salas-fumás, 1998. "Agency-Theory and Internal-Labor-Market Explanations of Bonus Payments: Empirical Evidence from Spanish Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 573-613, December.
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Cited by:
  1. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.
  2. Patrick Kampkoetter, 2012. "Determinants of Compensation in the Financial Services Industry," Cologne Graduate School Working Paper Series 03-12, Cologne Graduate School in Management, Economics and Social Sciences.
  3. K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.

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