Job Characteristics, Employee Demographics, and the Cross-Section of Performance Pay

Abstract

Using data from the online platform Glassdoor, we provide evidence that performance pay tracks an employee's role within the firm, exacerbates income inequality, and varies more than base pay across time, especially for job transitions. Employees in occupations requiring more interpersonal (routine) tasks receive larger (smaller) bonuses and are more (less) likely to receive a bonus. Further, employees higher up the corporate hierarchy earn significant premiums in and a larger share of income from performance pay. While age, school pedigree, firm tenure, and education magnify bonuses, demographics cannot explain these outsized returns. Our results suggest firms set compensation based primarily on the job, incentivize workers through career concerns, and reward social skills. We estimate 66% (90%) of a worker's performance (base) pay can be explained by the average among those in the same firm and job title, and that performance pay accounts for about one-fourth of a 32% performance-pay-job premium.

Keywords: Performance Pay, Compensation Packages, Job Hierarchy, Income Inequality

JEL Classification: J24, J31, M52, M55