Publication type
Journal Article
Authors
Publication date
July 15, 2016
Summary:
The press often depicts bonuses as extra payments to the already well compensated and calls for reform. Yet, these calls typically ignore the efficiency argument that bonuses are potentially risky performance pay that substitute for salary compensation. This paper uses representative UK data to estimate that bonuses appear not to substitute for salary in cross-sectional estimates. Yet, when controlling for time-invariant characteristics in panel data, bonuses emerge as partial substitutes. Each pound of bonus comes at a cost of 40 pence in other earnings. The degree of substitution is far larger at the bottom of the earnings distribution and far smaller at the top of the earnings distribution where, indeed, bonuses look more like gravy.
Published in
Industrial Relations: A Journal of Economy and Society
Volume and page numbers
Volume: 55 , p.490 -513
DOI
http://dx.doi.org/10.1111/irel.12147
ISSN
198676
Subject
#523726