Skip to main content
SpringerLink
Log in

Bonus Plans, Subjective Performance Evaluations, and Career Concerns

  • Living reference work entry
  • First Online:
Handbook of Labor, Human Resources and Population Economics

  • 512 Accesses

Abstract

This article gives a selective review on the (behavioral) economics of incentives in organizations. It starts with the analysis of a simple principal agent model. This model is then step-by-step extended in several domains to incorporate specific behavioral mechanisms that affect how people respond to incentives. Evidence from lab and field experiments as well as firm-level field studies with observational data are discussed. Topics covered are the moral hazard problem and the role of intrinsic motivation, the trade-off between risk and incentives, fairness and reciprocity, career and image concerns, detrimental effects of bonuses, and subjective performance evaluations.

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

Access this chapter

Log in via an institution

Institutional subscriptions

Similar content being viewed by others

References

  • Aggarwal S, Samwick A (1999) The other side of the tradeoff: the impact of risk on executive compensation. J Polit Econ 107:65–105

    Google Scholar 

  • Akerlof G (1982) Labor contracts as partial gift exchange. Q J Econ 97:543–569

    Google Scholar 

  • Alfitian J, Sliwka D, Vogelsang T (2020) When bonuses backfire: how incentivizing attendance increases absenteeism in the workplace. Mimeo University of Cologne

    Google Scholar 

  • Ariely D, Bracha A, Meier S (2009) Doing good or doing well? Image motivation and monetary incentives in behaving prosocially. Am Econ Rev 99(1):544–555

    Google Scholar 

  • Bandiera O, Barankay I, Rasul I (2007) Incentives for managers and inequality among workers: evidence from a firm-level experiment. Q J Econ 122:729–773

    Google Scholar 

  • Bénabou R, Tirole J (2006) Incentives and prosocial behavior. Am Econ Rev 96(5):1652–1678

    Google Scholar 

  • Berger J, Harbring C, Sliwka D (2013) Performance appraisals and the impact of forced distribution: an experimental investigation. Manag Sci 59(1):54–68

    Google Scholar 

  • Besley T, Ghatak M (2005) Competition and incentives with motivated agents. Am Econ Rev 95(3):616–636

    Google Scholar 

  • Bol JC (2011) The determinants and performance effects of managers’ performance evaluation biases. Account Rev 86(5):1549–1575

    Google Scholar 

  • Bolton GE, Ockenfels A (2000) ERC – a theory of equity, reciprocity and competition. Am Econ Rev 90:166–193

    Google Scholar 

  • Cadsby C, Song F, Tapon F (2007) Sorting and incentive effects of pay for performance: an experimental investigation. Acad Manag J 50(2):387–405

    Google Scholar 

  • Carpenter J, Gong E (2016) Motivating agents: how much does the mission matter? J Labor Econ 34(1):211–236

    Google Scholar 

  • Cassar L (2019) Job mission as a substitute for monetary incentives: benefits and limits. Manag Sci 65(2):896–912

    Google Scholar 

  • Charness G, Kuhn P, Villeval MC (2011) Competition and the ratchet effect. J Labor Econ 29(3):513–547

    Google Scholar 

  • Charness G, Cooper M, Reddinger JL (2020) Wage policies, incentive schemes, and motivation. In: Handbook of labor, human resources and population economics. Springer, Cham, pp 1–33

    Google Scholar 

  • Cooper DJ, Kagel JH, Lo W, Gu QL (1999) Gaming against managers in incentive systems: experimental results with chinese students and chinese managers. Am Econ Rev 89(4):781–804

    Google Scholar 

  • Cox JC, Friedman D, Gjerstad S (2007) A tractable model of reciprocity and fairness. Games Econ Behav 1(59):17–45

    Google Scholar 

  • Danilov A, Sliwka D (2017) Can contracts signal social norms? Experimental evidence. Manag Sci 63(2):459–476

    Google Scholar 

  • Deci EL (1971) Effects of externally mediated rewards on intrinsic motivation. J Pers Soc Psychol 18:105–115

    Google Scholar 

  • Delfgaauw J, Dur R (2010) Managerial talent, motivation, and self-selection into public management. J Public Econ 94(9–10):654–660

    Google Scholar 

  • DellaVigna S, Pope D (2018) What motivates effort? Evidence and expert forecasts. Rev Econ Stud 85(2):1029–1069

    Google Scholar 

  • Dohmen T, Falk A (2011) Performance pay and multidimensional sorting: productivity, preferences, and gender. Am Econ Rev 101(2):556–590

    Google Scholar 

  • Dufwenberg M, Kirchsteiger G (2004) A theory of sequential reciprocity. Games Econ Behav 47(2):268–298

    Google Scholar 

  • Edmans A, Gabaix X, Jenter D (2017) Executive compensation: a survey of theory and evidence. In: The handbook of the economics of corporate governance, vol 1. Elsevier, Amsterdam, pp 383–539

    Google Scholar 

  • Ellingsen T, Johannesson M (2008) Pride and prejudice: the human side of incentive theory. Am Econ Rev 98(3):990–1008

    Google Scholar 

  • Engellandt A, Riphahn RT (2011) Evidence on incentive effects of subjective performance evaluations. ILR Rev 64(2):241–257

    Google Scholar 

  • Esteves-Sorenson C (2018) Gift exchange in the workplace: addressing the conflicting evidence with a careful test. Manag Sci 64(9):4365–4388

    Google Scholar 

  • Falk A, Fischbacher U (2006) A theory of reciprocity. Games Econ Behav 54:293–315

    Google Scholar 

  • Fehr E, Schmidt KM (1999) A theory of fairness, competition, and cooperation. Q J Econ 114:817–868

    Google Scholar 

  • Fehr E, Kirchsteiger G, Riedl A (1993) Does fairness prevent market clearing? An experimental investigation. Q J Econ 108:437–460

    Google Scholar 

  • Fehr E, Gchter S, Kirchsteiger G (1997) Reciprocity as a contract enforcement device - experimental evidence. Econometrica 64:833–860

    Google Scholar 

  • Frederiksen A, Kahn LB, Lange F (2020) Supervisors and performance management systems. J Polit Econ 128(6):2123–2187

    Google Scholar 

  • Friebel G, Heinz M, Krüger M, Zubanov N (2017) Team incentives and performance: evidence from a retail chain. Am Econ Rev 107(8):2168–2203

    Google Scholar 

  • Gibbons RS, Murphy KJ (1992) Optimal incentive contracts in the presence of career concerns: theory and evidence. J Polit Econ 100:468–505

    Article  Google Scholar 

  • Gneezy U, List J (2006) Putting behavioral economics to work: testing for gift exchange in labor markets using field experiments. Econometrica 74(5):1365–1384

    Article  Google Scholar 

  • Gneezy U, Rustichini A (2000a) A fine is a price. J Leg Stud 29:1–18

    Article  Google Scholar 

  • Gneezy U, Rustichini A (2000b) Pay enough or don’t pay at all. Q J Econ 115:791–810

    Article  Google Scholar 

  • Gompers P, Lerner J (1999) An analysis of compensation in the us venture capital partnership. J Financ Econ 51(1):3–44

    Article  Google Scholar 

  • Grund C, Sliwka D (2010) Evidence on performance pay and risk aversion. Econ Lett 106(1):8–11

    Article  Google Scholar 

  • Holmström B, Milgrom P (1991) Multitask principal-agent analyses: incentive contracts, asset ownership and job design. J Law Econ Org 7:24–52

    Google Scholar 

  • Holmström B (1982) Managerial incentive problems – a dynamic perspective. In: Essays in economics and management in honor of Lars Wahlbeck, Helsinki

    Google Scholar 

  • Holmström B (2017) Pay for performance and beyond. Am Econ Rev 107(7):1753–1777

    Google Scholar 

  • Irlenbusch B, Sliwka D (2006) Career concerns in a simple experimental labour market. Eur Econ Rev 50:147–170

    Google Scholar 

  • Kahneman D, Tversky A (1979) Prospect theory: an analysis of decisions under risk. Econometrica 47:313–327

    Google Scholar 

  • Kampkötter P, Sliwka D (2018) More dispersion, higher bonuses? On differentiation in subjective performance evaluations. J Labor Econ 36(2):511–549

    Google Scholar 

  • Koch AK, Morgenstern A, Raab P (2009) Career concerns incentives: an experimental test. J Econ Behav Organ 72(1):571–588

    Google Scholar 

  • Kszegi B, Rabin M (2006) A model of reference-dependent preferences. Q J Econ 121(4):1133–1165

    Google Scholar 

  • Kube S, Maréchal MA, Puppe C (2013) Do wage cuts damage work morale? Evidence from a natural field experiment. J Eur Econ Assoc 11(4):853–870

    Google Scholar 

  • Lazear EP (2000) Performance pay and productivity. Am Econ Rev 90(5):1346–1362

    Google Scholar 

  • Levine DK (1998) Modeling altruism and spitefulness in experiments. Rev Econ Dyn 1:593–622

    Google Scholar 

  • Loomes G, Sugden R (1986) Disappointment and dynamic consistency in choice under uncertainty. Rev Econ Stud 53(2):271–282

    Google Scholar 

  • Manthei K, Sliwka D (2019) Multitasking and subjective performance evaluations: theory and evidence from a field experiment in a bank. Manag Sci 65(12):5861–5883

    Google Scholar 

  • Manthei K, Sliwka D, Vogelsang T (2018) Performance pay and prior learning: evidence from a retail chain. IZA Discussion Paper 11859

    Google Scholar 

  • Meyer MA, Vickers J (1997) Performance comparisons and dynamic incentives. J Polit Econ 105:547–581

    Google Scholar 

  • Ockenfels A, Sliwka D, Werner P (2014) Bonus payments and reference point violations. Manag Sci 61(7):1496–1513

    Google Scholar 

  • Prendergast CJ (1999) The provision of incentives in firms. J Econ Lit 37:7–63

    Google Scholar 

  • Prendergast CJ (2002a) The tenuous tradeoff between risk and incentives. J Polit Econ 110:1071–1102

    Google Scholar 

  • Prendergast CJ (2002b) Uncertainty and incentives. J Labor Econ 20:115–137

    Google Scholar 

  • Prendergast C, Topel R (1996) Favoritism in organizations. J Polit Econ 104:958–978

    Google Scholar 

  • Rabin M (1993) Incorporating fairness into game theory and economics. Am Econ Rev 83:1281–1302

    Google Scholar 

  • Sebald A, Walzl M (2014) Subjective performance evaluations and reciprocity in principal–agent relations. Scand J Econ 116(2):570–590

    Google Scholar 

  • Shearer B (2004) Piece rates, fixed wages and incentives: evidence from a field experiment. Rev Econ Stud 71:513–534

    Google Scholar 

  • Sliwka D (2007) Trust as a signal of a social norm and the hidden costs of incentive schemes. Am Econ Rev 97:999–1012

    Google Scholar 

  • Sliwka D, Werner P (2017) Wage increases and the dynamics of reciprocity. J Labor Econ 35(2):299–344

    Google Scholar 

  • Villeval MC (2020) Performance feedback and peer effects. In: Handbook of labor, human resources and population economics, Springer

    Google Scholar 

  • Wolfstetter E (2002) Topics in microeconomics. Cambridge University Press, Cambridge

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of Cologne, Cologne, Germany

    Dirk Sliwka

Authors
  1. Dirk Sliwka
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Dirk Sliwka .

Editor information

Editors and Affiliations

  1. UNU-MERIT & Princeton University, Maastricht, The Netherlands

    Klaus F. Zimmermann

Section Editor information

  1. GATE UMR 5824, Centre National de la Recherche Scientifique (CNRS), University of Lyon, Ecully, Lyon, France

    Marie Claire Villeval

  2. CORTEX Laboratory of Excellence, Lyon, France

    Marie Claire Villeval

Rights and permissions

Reprints and permissions

Copyright information

© 2020 Springer Nature Switzerland AG

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Sliwka, D. (2020). Bonus Plans, Subjective Performance Evaluations, and Career Concerns. In: Zimmermann, K.F. (eds) Handbook of Labor, Human Resources and Population Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-57365-6_119-1

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-57365-6_119-1

  • Received:

  • Accepted:

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-57365-6

  • Online ISBN: 978-3-319-57365-6

  • eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences

Publish with us

Policies and ethics

Search

Navigation