A Bonus Given: Noise, Effort and Efficiency in a Flat Hierarchy

John G. Sessions; John D Skatun

A Bonus Given: Noise, Effort and Efficiency in a Flat Hierarchy

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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 language	English
Pages (from-to)	2527-2532
Number of pages	6
Journal	Economics Bulletin
Volume	39
Issue number	4
Early online date	12 Nov 2019
Publication status	Published - 2019

Keywords

bonuses
banks

Access to Document

Sessions_et_al_EconBull_ABonusGiven_VoR
John G Sessions and John D Skatun, (2019) ''A bonus given: noise, effort and efficiency in a flat hierarchy'', Economics Bulletin, Volume 39, Issue 4, pages 2527-2532.
Final published version, 1.09 MBLicence: Other

https://ideas.repec.org/a/ebl/ecbull/eb-19-00593.htmlLicence: Unspecified

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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.",

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note = "We thank participants at the European Association of Labour Economists (EALE) 2018 Conference, seminar participants at the University of Trier, Tim Barmby, Tor Eriksson, Laszlo Goerke and Alberto Palermo for valuable comments. We are also grateful to an anonoymous referee and the editors of this journal for helpful comments. The normal disclaimer applies ",

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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.

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