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Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction

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  • Pouliakas, Konstantinos

    (European Centre for the Development of Vocational Training (Cedefop))

Abstract

Using ten waves (1998-2007) of the British Household Panel Survey (BHPS), this paper investigates the ceteris paribus association between the intensity of incentive pay, the dynamic change in bonus status and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that job utility rises only in response to 'generous' bonus payments, primarily in skilled, non-unionized, private sector jobs. Revoking a bonus from one year to the next is found to have a detrimental impact on employee utility, while job satisfaction tends to diminish over time as employees potentially adapt to bonuses. The findings are therefore consistent with previous experimental evidence, suggesting that employers wishing to motivate their staff should indeed "pay enough or don't pay at all".

Suggested Citation

  • Pouliakas, Konstantinos, 2010. "Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction," IZA Discussion Papers 4713, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4713
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    4. Cirillo, Valeria & Rinaldini, Matteo & Staccioli, Jacopo & Virgillito, Maria Enrica, 2018. "Workers’ awareness context in Italian 4.0 factories," GLO Discussion Paper Series 240, Global Labor Organization (GLO).
    5. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2012. "Rewarding carrots and crippling sticks: Eliciting employee preferences for the optimal incentive design," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1247-1265.
    6. Dagmara Nikulin & Joanna Wolszczak-Derlacz & Aleksandra Parteka, 2022. "Working Conditions in Global Value Chains: Evidence for European Employees," Work, Employment & Society, British Sociological Association, vol. 36(4), pages 701-721, August.
    7. Ilija Coric & Katija Vojvodic, 2018. "Variable Pay 2.0: Transforming The Post-Transitional Context In Warehouse Logistics," Business Logistics in Modern Management, Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Croatia, vol. 18, pages 109-123.
    8. Petr Petera & Jana Fibírová, 2015. "Basic Approaches to Profit-Sharing and Ideas for Utilization [Základní přístupy k "profit-sharingu" a náměty na další využití]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2015(3), pages 97-117.
    9. Colin Green & John Heywood, 2012. "Don't Forget the Gravy! Are Bonuses and Time Rates Complements?," Working Papers 13424023, Lancaster University Management School, Economics Department.
    10. Yu Sun & Xintong Ma & Yifeng Liu & Lingquan Meng, 2023. "Salary Satisfaction of Employees at Workplace on a Large Area of Planted Land," Land, MDPI, vol. 12(11), pages 1-24, November.
    11. Konstantinos Pouliakas & Nikolaos Theodoropoulos, 2012. "The Effect of Variable Pay Schemes on Workplace Absenteeism," Research in Labor Economics, in: Research in Labor Economics, pages 109-157, Emerald Group Publishing Limited.
    12. Yuliya Frolova, 2014. "What Job will Bring Satisfaction? An Analysis based on Responses of Students Studying Business in Kazakhstan," Eurasian Journal of Business and Management, Eurasian Publications, vol. 2(2), pages 25-49.
    13. John G. Sessions & John D. Skåtun, 2022. "Luck in a Flat Hierarchy: Wages, Bonuses and Noise," The Economic Record, The Economic Society of Australia, vol. 98(323), pages 373-391, December.
    14. Uschi Backes-Gellner & Yvonne Oswald & Simone Tuor Sartore, 2014. "Part-Time Employment—Boon to Women but Bane to Men? New Insights on Employer-Provided Training," Kyklos, Wiley Blackwell, vol. 67(4), pages 463-481, November.
    15. Valeria Cirillo & Matteo Rinaldini & Jacopo Staccioli & Maria Enrica Virgillito, 2018. "Workers' intervention authority in Italian 4.0 factories: autonomy and discretion," LEM Papers Series 2018/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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    More about this item

    Keywords

    bonus; performance pay; job satisfaction; intensity; incentives;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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