A Bonus Given

Noise, Effort and Efficiency in a Flat Hierarchy

John G. Sessions, John D Skatun

Research output: Contribution to journalArticle

Abstract

We demonstrate that bonus payment schemes in firms with flat hierarchies are optimal when workers are homogenous and effort is unobservable. Whereas noisy environments generate less effort, firms compensate for this by offering higher bonuses to ensure efficiency. Policies that reduce bonuses in the financial sector may have to be implemented at a cost to efficiency.
Original languageEnglish
JournalEconomics Bulletin
Publication statusAccepted/In press - 5 Nov 2019

Fingerprint

Bonuses
Bonus
Payment
Financial sector
Workers
Costs

Keywords

  • bonuses
  • banks

Cite this

A Bonus Given : Noise, Effort and Efficiency in a Flat Hierarchy. / Sessions, John G.; Skatun, John D.

In: Economics Bulletin, 05.11.2019.

Research output: Contribution to journalArticle

@article{f51296a5149344c88c2dfb286466b1bc,
title = "A Bonus Given: Noise, Effort and Efficiency in a Flat Hierarchy",
abstract = "We demonstrate that bonus payment schemes in firms with flat hierarchies are optimal when workers are homogenous and effort is unobservable. Whereas noisy environments generate less effort, firms compensate for this by offering higher bonuses to ensure efficiency. Policies that reduce bonuses in the financial sector may have to be implemented at a cost to efficiency.",
keywords = "bonuses, banks",
author = "Sessions, {John G.} and Skatun, {John D}",
note = "We thank participants at the European Association of Labour Economists (EALE) 2018 Conference Lyon for comments on a previous related paper, seminar participants at the University of Trier, Tim Barmby, Tor Eriksson Laszlo Goerke and Alberto Palermo for valuable comments. The standard caveat applies",
year = "2019",
month = "11",
day = "5",
language = "English",
journal = "Economics Bulletin",
issn = "1545-2921",
publisher = "Economics Bulletin",

}

TY - JOUR

T1 - A Bonus Given

T2 - Noise, Effort and Efficiency in a Flat Hierarchy

AU - Sessions, John G.

AU - Skatun, John D

N1 - We thank participants at the European Association of Labour Economists (EALE) 2018 Conference Lyon for comments on a previous related paper, seminar participants at the University of Trier, Tim Barmby, Tor Eriksson Laszlo Goerke and Alberto Palermo for valuable comments. The standard caveat applies

PY - 2019/11/5

Y1 - 2019/11/5

N2 - We demonstrate that bonus payment schemes in firms with flat hierarchies are optimal when workers are homogenous and effort is unobservable. Whereas noisy environments generate less effort, firms compensate for this by offering higher bonuses to ensure efficiency. Policies that reduce bonuses in the financial sector may have to be implemented at a cost to efficiency.

AB - We demonstrate that bonus payment schemes in firms with flat hierarchies are optimal when workers are homogenous and effort is unobservable. Whereas noisy environments generate less effort, firms compensate for this by offering higher bonuses to ensure efficiency. Policies that reduce bonuses in the financial sector may have to be implemented at a cost to efficiency.

KW - bonuses

KW - banks

M3 - Article

JO - Economics Bulletin

JF - Economics Bulletin

SN - 1545-2921

ER -