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Bonus Payments, Hierarchy Levels and Tenure: Theoretical Considerations and Empirical Evidence

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  • Grund, Christian

    (RWTH Aachen University)

  • Kräkel, Matthias

    (University of Bonn)

Abstract

Using data on executive compensation for the German chemical industry, we investigate the relevance of two theoretical approaches that focus on bonuses as part of a long term wage policy of a firm. The first approach argues that explicit bonuses serve as substitutes for implicit career concerns. The second approach claims that bonuses are used as complements to an executive's internal career. Our data show that bonus payments are mostly prevalent among senior executives at higher hierarchy levels and rather for management jobs than for jobs in research and development. This is true for the whole chemical sector as well as for single large corporations. The findings indicate that the two theoretical views are not mutually exclusive, but are both relevant in practice.

Suggested Citation

  • Grund, Christian & Kräkel, Matthias, 2010. "Bonus Payments, Hierarchy Levels and Tenure: Theoretical Considerations and Empirical Evidence," IZA Discussion Papers 5284, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5284
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    References listed on IDEAS

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    1. Kräkel, Matthias & Schöttner, Anja, 2010. "Minimum wages and excessive effort supply," Economics Letters, Elsevier, vol. 108(3), pages 341-344, September.
    2. Pedro Ortín‐Ángel & Vicente Salas‐fumás, 1998. "Agency‐Theory and Internal‐Labor‐Market Explanations of Bonus Payments: Empirical Evidence from Spanish Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 573-613, December.
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    Cited by:

    1. K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.
    2. Christian Grund & Tanja Hofmann, 2019. "The dispersion of bonus payments within and between firms," Journal of Business Economics, Springer, vol. 89(4), pages 417-445, June.
    3. Patrick Kampkoetter, 2012. "Determinants of Compensation in the Financial Services Industry," Cologne Graduate School Working Paper Series 03-12, Cologne Graduate School in Management, Economics and Social Sciences.
    4. Patrick Kampkötter & Kathrin Marggraf & Jan-Hendrik Zimmermann, 2017. "Determinants and effects of formal target agreements: an empirical investigation of German firms," Review of Managerial Science, Springer, vol. 11(1), pages 1-18, January.
    5. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.
    6. Frederiksen, Anders & Lange, Fabian & Kriechel, Ben, 2017. "Subjective performance evaluations and employee careers," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 408-429.
    7. Tanja Hofmann & Johannes Martin, 2017. "Inter-firm Mobility and the Growth of Compensation Components," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(4), pages 399-423, October.

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    More about this item

    Keywords

    tenure; hierarchy; chemical sector; bonus payments; wage policy;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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