February 2010

IZA DP No. 4795: Bonus Payments and Reference Point Violations

published in: Management Science, 2015, 61 (7), 1496-1513

We investigate how bonus payments affect satisfaction and performance of managers in a large, multinational company. We find that falling behind a naturally occurring reference point for bonus comparisons reduces satisfaction and subsequent performance. The effects tend to be mitigated if information about one's relative standing towards the reference point is withheld.