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Don't Forget the Gravy! Are Bonuses and Time Rates Complements?

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  • Colin Green
  • John Heywood

Abstract

The press often depicts bonuses as extra payments to the already well compensated and calls for reform. Yet, these calls typically ignore the efficiency argument that bonuses are potentially risky performance pay that substitute for salary compensation. This paper uses representative UK data to estimate that bonuses appear not to substitute for salary in cross-sectional estimates. Yet, when controlling for time invariant characteristics in panel data, bonuses emerge as substitutes. Each pound of bonus comes at a cost of 40 pence in other earnings. The degree of substitution is far larger at the bottom of the earnings distribution and far smaller at the top of the earnings distribution.

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Bibliographic Info

Paper provided by Lancaster University Management School, Economics Department in its series Working Papers with number 13424023.

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Date of creation: 2012
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Handle: RePEc:lan:wpaper:13424023

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Cited by:
  1. Colin P. Green & John S. Heywood & Nikolaos Theodoropoulos, 2012. "Performance Pay and Ethnic Wage Differences in Britain," University of Cyprus Working Papers in Economics 06-2012, University of Cyprus Department of Economics.

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