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

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Keywords

  • bonuses
  • banks

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