Bonus Payments and Reference Point Violations

31 Pages Posted: 8 Mar 2010

See all articles by Axel Ockenfels

Axel Ockenfels

University of Cologne - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management; IZA Institute of Labor Economics

Peter Werner

Maastricht University - Department of Economics

Abstract

We investigate how bonus payments affect satisfaction and performance of managers in a large, multinational company. We find that falling behind a naturally occurring reference point for bonus comparisons reduces satisfaction and subsequent performance. The effects tend to be mitigated if information about one's relative standing towards the reference point is withheld.

Keywords: reference points, incentives, bonus payments, job satisfaction, job performance

JEL Classification: D03, M52

Suggested Citation

Ockenfels, Axel and Sliwka, Dirk and Werner, Peter, Bonus Payments and Reference Point Violations. IZA Discussion Paper No. 4795. Available at SSRN: https://ssrn.com/abstract=1566344

Axel Ockenfels (Contact Author)

University of Cologne - Department of Economics ( email )

Albertus Magnus Platz
Cologne 50923
Germany

HOME PAGE: http://ockenfels.uni-koeln.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management ( email )

Koln, 50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Peter Werner

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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