Template-Type: ReDIF-Paper 1.0
Author-Name: Colin Green
Author-Name-First: Colin
Author-Name-Last: Green
Author-Name: John Heywood
Author-Name-First: John
Author-Name-Last: Heywood
Title: Don't Forget the Gravy! Are Bonuses and Time Rates Complements?
Abstract: The press often depicts bonuses as extra payments to the already well compensated and calls for reform. Yet, these calls typically ignore the efficiency argument that bonuses are potentially risky performance pay that substitute for salary compensation. This paper uses representative UK data to estimate that bonuses appear not to substitute for salary in cross-sectional estimates. Yet, when controlling for time invariant characteristics in panel data, bonuses emerge as substitutes. Each pound of bonus comes at a cost of 40 pence in other earnings. The degree of substitution is far larger at the bottom of the earnings distribution and far smaller at the top of the earnings distribution.
Creation-Date: 2012
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/Bonus_and_Salary_Wp.pdf
File-Format: application/pdf
Number: 13424023
Classification-JEL: 
Keywords: 
Handle: RePEc:lan:wpaper:13424023