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The incentive effect of bonuses on firm performance

Author

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  • Balázs Reizer

    (ELTE Centre for Economic and Regional Studies; Corvinus University Budapest)

Abstract

I investigate the relationship between bonus payments and firm performance using Hungarian linked employer-employee data. A raw comparison shows that firms paying bonuses to 10 percentage points more of their employees are 3-5 percent more productive. Then, I construct an instrument to estimate the incentive effect of bonus payments. The IV estimates show that the incentive effect of a 10 percentage point increase in the share of employees with bonus payments increases firm productivity by 7-14 percent. Based on these results, I conclude that the raw comparison of firms with and without bonuses underestimates the incentive effects of bonus payments. Furthermore, some firms may have motivations for paying bonuses other than incentivizing employees.

Suggested Citation

  • Balázs Reizer, 2025. "The incentive effect of bonuses on firm performance," CERS-IE WORKING PAPERS 2516, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:2516
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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