Base Salaries, Bonus Payments, and Work Absence among Managers in a German Company
| Published date | 01 November 2014 |
| DOI | http://doi.org/10.1111/sjpe.12056 |
| Author | Christian Pfeifer |
| Date | 01 November 2014 |
BASE SALARIES, BONUS PAYMENTS,
AND WORK ABSENCE AMONG
MANAGERS IN A GERMAN COMPANY
Christian Pfeifer*
,
**
ABSTRACT
This paper provides scarce insider econometric evidence on the structure of man-
agement compensation and on the incentive effects of fixed base salaries and
bonus payments. Six years of personnel data of 177 managers in a German com-
pany are analyzed with special emphasis on the highest achievable bonuses under
a Management-by-Objectives (MBO) incentive scheme. The main finding of
panel negative binomial regressions is that higher achievable bonus payments are
correlated with fewer absent working days, which supports the incentive effect of
performance pay for managers. The fixed base salary component is, however,
not significantly correlated with managers’ work absence.
II
NTRODUCTION
Incentives are the essence of economics. Despite many wide-
ranging claims about their supposed importance, there has been
little empirical assessment of incentive provision for workers.
(Prendergast, 1999, Journal of Economic Literature 37(1), p. 7)
Incentive pay, i.e., monetary rewards to increase work effort, has received
increasing attention in recent decades (for reviews see among others Gibbons,
1998; Lazear, 1999; Prendergast, 1999; Lazear and Oyer, 2013; Lazear and
Shaw, 2007; Bloom and van Reenen, 2011; Oyer and Schaefer, 2011; Rebitzer
and Taylor, 2011). The general idea of incentive pay, which has been formal-
ized in principal-agency models, is that better job performance or higher work
effort can be expected if a worker’s pay is more strongly attached to his per-
formance. One stream of the literature on incentive pay is primarily theoreti-
cal and concerned with efficient contract design. Another stream is empirical
and tries to identify the effects of incentive pay. However, most empirical
research uses data that allow rather indirect statistical inference. The majority
of empirical studies use household, administrative, or aggregated firm survey
*Leuphana University L€
uneburg
**IZA
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12056, Vol. 61, No. 5, November 2014
©2014 Scottish Economic Society.
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