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

30 Pages Posted: 1 Feb 2010

See all articles by Konstantinos Pouliakas

Konstantinos Pouliakas

Cedefop; University of Aberdeen - Business School; IZA Institute of Labor Economics

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".

Keywords: incentives, intensity, bonus, performance pay, job satisfaction

JEL Classification: C23, J28, J33, M52, M54

Suggested Citation

Pouliakas, Konstantinos, Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction. IZA Discussion Paper No. 4713, Available at SSRN: https://ssrn.com/abstract=1545140

Konstantinos Pouliakas (Contact Author)

Cedefop ( email )

PO Box 22427
Finikas (Thessaloniki), 55102
Greece

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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