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

54 Pages Posted: 2 Jul 2018

See all articles by Luke Boosey

Luke Boosey

Florida State University - Department of Economics

Sebastian J. Goerg

Florida State University - Department of Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

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.

Keywords: experiment, timing, discretionary bonuses, reciprocity

JEL Classification: M5

Suggested Citation

Boosey, Luke and Goerg, Sebastian J., The Timing of Discretionary Bonuses: Effort, Signals, and Reciprocity. IZA Discussion Paper No. 11580. Available at SSRN: https://ssrn.com/abstract=3205847

Luke Boosey (Contact Author)

Florida State University - Department of Economics ( email )

288 Bellamy Building
Tallahassee, FL 32306-2180
United States
850-644-7208 (Phone)

Sebastian J. Goerg

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1 (850) 644-7083 (Phone)

HOME PAGE: http://www.s-goerg.de

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://www.coll.mpg.de

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