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Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction

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  • Pouliakas, Konstantinos

    (European Centre for the Development of Vocational Training (Cedefop))

Abstract

Using ten waves (1998-2007) of the British Household Panel Survey (BHPS), this paper investigates the ceteris paribus association between the intensity of incentive pay, the dynamic change in bonus status and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that job utility rises only in response to 'generous' bonus payments, primarily in skilled, non-unionized, private sector jobs. Revoking a bonus from one year to the next is found to have a detrimental impact on employee utility, while job satisfaction tends to diminish over time as employees potentially adapt to bonuses. The findings are therefore consistent with previous experimental evidence, suggesting that employers wishing to motivate their staff should indeed "pay enough or don't pay at all".

Suggested Citation

  • Pouliakas, Konstantinos, 2010. "Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction," IZA Discussion Papers 4713, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4713
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    Cited by:

    1. Melik Karabiyikoglu, 2012. "Bonus and Rebate: Perception of Exclusive GSM Dealers and Their Salesmen in Turkey," International Review of Management and Marketing, Econjournals, vol. 2(3), pages 192-198.
    2. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2012. "Rewarding carrots and crippling sticks: Eliciting employee preferences for the optimal incentive design," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1247-1265.
    3. Dagmara Nikulin & Joanna Wolszczak-Derlacz & Aleksandra Parteka, 2019. "Working Conditions In Global Value Chains.Evidence For European Employees," GUT FME Working Paper Series A 54, Faculty of Management and Economics, Gdansk University of Technology.
    4. Petr Petera & Jana Fibírová, 2015. "Basic Approaches to Profit-Sharing and Ideas for Utilization [Základní přístupy k "profit-sharingu" a náměty na další využití]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2015(3), pages 97-117.
    5. Colin Green & John Heywood, 2012. "Don't Forget the Gravy! Are Bonuses and Time Rates Complements?," Working Papers 13424023, Lancaster University Management School, Economics Department.
    6. Konstantinos Pouliakas & Nikolaos Theodoropoulos, 2012. "The Effect of Variable Pay Schemes on Workplace Absenteeism," Research in Labor Economics, in: Solomon W. Polachek & Konstantinos Tatsiramos (ed.), Research in Labor Economics, volume 36, pages 109-157, Emerald Publishing Ltd.

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    More about this item

    Keywords

    bonus; performance pay; job satisfaction; intensity; incentives;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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