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Bonus Payments and Reference Point Violations

Author

Listed:
  • Axel Ockenfels

    () (University of Cologne, D-50923 Köln, Germany)

  • Dirk Sliwka

    () (University of Cologne, D-50923 Köln, Germany; CESifo, 81679 Munich, Germany; and IZA, 53113 Bonn, Germany)

  • Peter Werner

    () (University of Cologne, D-50923 Köln, Germany)

Abstract

We investigate how bonus payments affect the satisfaction and performance of managers in a large multinational company. We find that falling behind a natural reference standard for a fair bonus payment (a “reference point violation”) reduces satisfaction and subsequent performance. The effects are mitigated if information about one’s relative standing toward the reference point is withheld. A model and a laboratory experiment provide complementary insights and additional robustness checks. This paper was accepted by Uri Gneezy, behavioral economics.

Suggested Citation

  • Axel Ockenfels & Dirk Sliwka & Peter Werner, 2015. "Bonus Payments and Reference Point Violations," Management Science, INFORMS, vol. 61(7), pages 1496-1513, July.
  • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:7:p:1496-1513
    DOI: 10.1287/mnsc.2014.1949
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    More about this item

    Keywords

    reference points; bonus payments; job satisfaction; job performance; transparency;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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