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The Timing of Discretionary Bonuses: Effort, Signals, and Reciprocity

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  • Boosey, Luke

    () (Florida State University)

  • Goerg, Sebastian J.

    () (Technische Universität München)

Abstract

In a real-effort experiment, we investigate how the timing of discretionary bonuses affects the relationship between workers and managers. Average output is substantially higher if bonuses are paid in the middle rather than upfront or at the end, as workers increase first-period output to signal trustworthiness. In contrast, average output does not differ when the decision is made at the beginning or end. When the decision is made upfront, output increases after receiving a bonus but decreases substantially, if the bonus is not paid. This is consistent with negative reciprocity by workers who anticipate, but do not receive a bonus.

Suggested Citation

  • Boosey, Luke & Goerg, Sebastian J., 2018. "The Timing of Discretionary Bonuses: Effort, Signals, and Reciprocity," IZA Discussion Papers 11580, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp11580
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    Cited by:

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    2. Matthias Fahn, 2019. "Reciprocity in dynamic employment relationships," CESifo Working Paper Series 7634, CESifo.
    3. Matthias Fahn, 2020. "Reciprocity in Dynamic Employment Relationships," Economics working papers 2020-12, Department of Economics, Johannes Kepler University Linz, Austria.

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    More about this item

    Keywords

    reciprocity; discretionary bonuses; timing; experiment;
    All these keywords.

    JEL classification:

    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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