IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Don't Forget the Gravy! Are Bonuses and Time Rates Complements?

  • Colin Green
  • John Heywood

The press often depicts bonuses as extra payments to the already well compensated and calls for reform. Yet, these calls typically ignore the efficiency argument that bonuses are potentially risky performance pay that substitute for salary compensation. This paper uses representative UK data to estimate that bonuses appear not to substitute for salary in cross-sectional estimates. Yet, when controlling for time invariant characteristics in panel data, bonuses emerge as substitutes. Each pound of bonus comes at a cost of 40 pence in other earnings. The degree of substitution is far larger at the bottom of the earnings distribution and far smaller at the top of the earnings distribution.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Lancaster University Management School, Economics Department in its series Working Papers with number 13424023.

in new window

Date of creation: 2012
Date of revision:
Handle: RePEc:lan:wpaper:13424023
Contact details of provider: Postal: LANCASTER LA1 4YX
Phone: +44 (1524) 594601
Fax: +44 (1524) 594244
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Guido Friebel & Michael Raith, 2004. "Abuse of Authority and Hierarchical Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 224-244, Summer.
  2. Daniel Parent, 1997. "Methods of Pay and Earnings: A Longitudinal Analysis," CIRANO Working Papers 97s-14, CIRANO.
  3. Konstantinos Pouliakas, 2010. "Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction," Kyklos, Wiley Blackwell, vol. 63(4), pages 597-626, November.
  4. Thomas Cornelißen & John S. Heywood & Uwe Jirjahn, 2008. "Performance Pay, Risk Attitudes and Job Satisfaction," SOEPpapers on Multidisciplinary Panel Data Research 136, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, vol. 91(1), pages 74-89, October.
  6. Colin Green & John S. Heywood, 2008. "Does Performance Pay Increase Job Satisfaction?," Economica, London School of Economics and Political Science, vol. 75(300), pages 710-728, November.
  7. Charles Brown, 1990. "Wage Levels and Method of Pay," NBER Working Papers 3336, National Bureau of Economic Research, Inc.
  8. repec:ese:iserwp:2010-33 is not listed on IDEAS
  9. Carmichael, H Lorne & MacLeod, W Bentley, 2000. "Worker Cooperation and the Ratchet Effect," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 1-19, January.
  10. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," CEPR Discussion Papers 3558, C.E.P.R. Discussion Papers.
  11. Wadhwani, Sushil & Wall, Martin, 1990. "The Effects of Profit-Sharing on Employment, Wages, Stock Returns and Productivity: Evidence from UK Micro-data," Economic Journal, Royal Economic Society, vol. 100(399), pages 1-17, March.
  12. Cahue, P. & Dormont, B., 1993. "Profit-Sharing: Does It Increase Productivity and Employment?," Papers 9307, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  13. Bentley W. MacLeod, 2003. "Optimal Contracting with Subjective Evaluation," American Economic Review, American Economic Association, vol. 93(1), pages 216-240, March.
  14. Hart, Robert A & Hubler, Olaf, 1991. "Are Profit Shares and Wages Substitute or Complementary Forms of Compensation?," Kyklos, Wiley Blackwell, vol. 44(2), pages 221-31.
  15. Méon, Pierre-Guillaume & Szafarz, Ariane, 2011. "The modern corporation as a safe haven for taste-based discrimination: An agency model of hiring decisions," Labour Economics, Elsevier, vol. 18(4), pages 487-497, August.
  16. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
  17. Jenkins, Stephen P., 2010. "The British Household Panel Survey and its Income Data," IZA Discussion Papers 5242, Institute for the Study of Labor (IZA).
  18. John S. Heywood & Daniel Parent, 2012. "Performance Pay and the White-Black Wage Gap," Journal of Labor Economics, University of Chicago Press, vol. 30(2), pages 249 - 290.
  19. Prendergast, Canice & Topel, Robert, 1993. "Discretion and bias in performance evaluation," European Economic Review, Elsevier, vol. 37(2-3), pages 355-365, April.
  20. Roger T. Kaufman, 1998. "The Effects of Gain Sharing on the Basic Wage: The Case of IMPROSHARE," LABOUR, CEIS, vol. 12(3), pages 595-600, 09.
  21. Anna Zaharieva (Chizhova), 2010. "Risk Sharing and Employee Motivation in Competitive Search Equilibrium," Working Paper Series of the Department of Economics, University of Konstanz 2010-07, Department of Economics, University of Konstanz.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lan:wpaper:13424023. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giorgio Motta)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.