Skip to main content
SpringerLink
Log in

Bonus Payments, Hierarchy Levels, and Tenure: Theoretical Considerations and Empirical Evidence

  • Bonus Payments
  • Published:
Schmalenbach Business Review Aims and scope

Abstract

We investigate two theoretical approaches that focus on bonuses as part of a firm’s long-term wage policy. The first approach argues that explicit bonuses serve as substitutes for implicit career concerns. The second claims that bonuses act as complements to an executive’s internal career. Our data show that throughout the whole chemical industry sector, bonus payments are mostly prevalent among the most senior executives and for management jobs rather than for jobs in research and development. The findings indicate that the two theoretical views are not mutually exclusive, but are both relevant in practice.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Auriol, Emmanuelle, Guido Friebel, and Lambros Pechlivanos (2002), Career Concerns in Teams, Journal ofLabor Economics 20, 289–307.

    Google Scholar 

  • Babu, A. Ramesh and Y. P. Singh (1998), Determinants of Research Productivity, Scientometrics 43, 309–329.

    Article  Google Scholar 

  • Baker, George P., Michael Gibbs, and Bengt Holmström (1994a), The Internal Economics of the Firm: Evidence from Personnel Data, Quarterly Journal of Economics 109, 881–919.

    Article  Google Scholar 

  • Baker, George P., Michael Gibbs, and Bengt Holmström (1994b), The Wage Policy of a Firm, Quarterly Journal of Economics 109, 921–955.

    Article  Google Scholar 

  • Baker, George P., Michael C. Jensen, and Kevin J. Murphy (1988), Compensation and Incentives: Practice vs. Theory, Journal of Finance 43, 593–616.

    Article  Google Scholar 

  • Bar-Isaac, Heski and Juan-José Ganuza (2008), Recruitment, Training, and Career Concerns, Journal of Economics and Management Strategy 17, 839–864.

    Article  Google Scholar 

  • Cardinal, Laura B. (2001), Technological Innovation in the Pharmaceutical Industry: The Use of Organizational Control in Managing Research and Development, Organization Science 12, 19–36.

    Article  Google Scholar 

  • DeGroot, Morris H. (1970), Optimal Statistical Decisions, New York et al.: McGraw-Hill.

    Google Scholar 

  • Dewatripont, Mathias, Ian Jewitt, and Jean Tirole (1999), The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies, Review of Economic Studies 66, 199–217.

    Article  Google Scholar 

  • Dundar, Halil and Darrel R. Lewis (1989), Determinants of Research Productivity in Higher Education, Research in Higher Education 39, 607–631.

    Article  Google Scholar 

  • Fama, Eugene F. (1980), Agency Problems and the Theory of the Firm, Journal of Political Economy 88, 288–307.

    Article  Google Scholar 

  • Gibbons, Robert and Kevin J. Murphy (1992), Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence, Journal of Political Economy 100, 468–505.

    Article  Google Scholar 

  • Gibbs, Michael (1995), Incentive Compensation in a Corporate Hierarchy, Journal of Accounting and Economics 19, 247–277.

    Article  Google Scholar 

  • Heckman, James J. (1976), The Common Structure of Statistical Models of Truncation, Sample Selection, and Limited Dependent Variables and a Simple Estimator for Such Models, The Annals of Economic and Social Measurement 5, 475–492.

    Google Scholar 

  • Holmström, Bengt (1982), Managerial Incentive Problems — A Dynamic Perspective, in B. Walross (ed.): Essays in Economics and Management in Honor of Lars Wahlbeck, Helsinki: Swedish School of Economics, 209–230.

    Google Scholar 

  • Holmström, Bengt (1999), Managerial Incentive Problems: A Dynamic Perspective, Review of Economic Studies 66, 169–182.

    Article  Google Scholar 

  • Innes, Robert D. (1990), Limited Liability and Incentive Contracting with Ex-ante Action Choices, Journal of Economic Theory 52, 45–67.

    Article  Google Scholar 

  • Irlenbusch, Bernd and Dirk Sliwka (2006), Career Concerns in a Simple Experimental Labour Market, European Economic Review 50, 147–170.

    Article  Google Scholar 

  • Kim, Son K. (1997), Limited Liability and Bonus Contracts, Journal of Economics and Management Strategy 6, 899–913.

    Article  Google Scholar 

  • Koch, Alexander K., Albrecht Morgenstern, and Philippe Raab (2009), Career Concerns Incentives: An Experimental Test, Journal of Economic Behavior and Organization 72, 571–588.

    Article  Google Scholar 

  • Kräkel, Matthias and Anja Schöttner (2009), Internal Labor Markets and Worker Rents, Discussion Paper.

    Google Scholar 

  • Kräkel, Matthias and Anja Schöttner (2010), Minimum Wages and Excessive Effort Supply, Economics Letters 108, 341–344.

    Article  Google Scholar 

  • Lazear, Edward P. (1995), Personnel Economics, Cambridge (Mass.)/London: MIT Press.

    Google Scholar 

  • Lazear, Edward P. (1998), Personnel Economics for Managers, New York et al.: John Wiley & Sons.

    Google Scholar 

  • Marino, Anthony M. and Ján Zábojnik (2008a), Work-Related Perks, Agency Problems, and Optimal Incentive Contracts, RAND Journal of Economics 39, 565–585.

    Article  Google Scholar 

  • Marino, Anthony M. and Ján Zábojnik (2008b), A Rent Extraction View of Employee Discounts and Benefits, Journal of Labor Economics 26, 485–518.

    Article  Google Scholar 

  • Murphy, Kevin J. (1999), Executive Compensation, in Ashenfelter, Orley and David Card (eds.), Handbook of Labor Economics, Volume 3b, Amsterdam et al.: North-Holland, 2485–2563.

    Google Scholar 

  • Ockenfels, Axel, Dirk Sliwka, and Peter Werner (2010), Bonus Payments and Reference Point Violations, IZA Discussion Paper No. 4795.

    Google Scholar 

  • Ortín-Ángel, Pedro and Vicente Salas-Fumás (1998), Agency-Theory and Internal-Labor-Market Explanations of Bonus Payments: Empirical Evidence from Spanish Firms, Journal of Economics and Management Strategy 7, 573–613.

    Article  Google Scholar 

  • Rosen, Sherwin (1982), Authority, Control and the Distribution of Earnings, Bell Journal of Economics 13, 311–323.

    Article  Google Scholar 

  • Rosen, Sherwin (1986), Prizes and Incentives in Elimination Tournaments, American Economic Review 76, 701–715.

    Google Scholar 

  • Sappington, David (1983), Limited Liability Contracts between Principal and Agent, Journal of Economic Theory 29, 1–21.

    Article  Google Scholar 

  • Smith, James J. and Timothy T. Szabo (1977), The Dual Ladder — Importance of Flexibility, Job Content and Individual Temperament, Research Management 20, 20–23.

    Article  Google Scholar 

  • Treble, John, Edwin van Gameren, Sarah Bridges, and Tim Barmby (2001), The Internal Economics of the Firm: Further Evidence from Personnel Data, Labour Economics 8, 531–552.

    Article  Google Scholar 

  • Tushman, Michael L. (1979), Work Characteristics and Subunit Communication Structure: A Contingency Analysis, Administrative Science Quarterly 24, 82–98.

    Article  Google Scholar 

  • Wood, Fiona (1990), Factors Influencing Research Performance of University Academic Staff, Higher Education 19, 81–100.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Organizational and Personnel Economics, University of Duisburg-Essen, Mercator School of Management, Lotharstr. 65, 47057, Duisburg, Germany

    Christian Grund

  2. Department of Economics, University of Bonn, Adenauerallee 24-42, 53113, Bonn, Germany

    Matthias Kräkel

Authors
  1. Christian Grund
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Matthias Kräkel
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christian Grund.

Additional information

Many thanks to Martin Kukuk and two anonymous referees for helpful comments and to Johannes Martin for preparing the data set. Financial support by the Deutsche Forschungsgemeinschaft (DFG), grant SFB/TR 15 (“Governance and the Efficiency of Economic Systems”) is gratefully acknowledged.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Grund, C., Kräkel, M. Bonus Payments, Hierarchy Levels, and Tenure: Theoretical Considerations and Empirical Evidence. Schmalenbach Bus Rev 64, 101–124 (2012). https://doi.org/10.1007/BF03396892

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF03396892

JEL-Classification

Keywords

Search

Navigation