Sunday, November 23, 2008

Do big bonuses work?

Dan Ariely deploys research data to claim that by big bonuses (and also public scrutiny) may end up making employees, especially those involved in high cognitive skill works, stressed up thereby adversely affecting their performance and lowering outcomes. The experiments appear to suggest that for those works involving mechanical skills, higher bonuses does improve performance. Do these results make out a case for bonuses to incentivize workers as against executives? The limits on executive compensation in the bailout plans may not be that bad after all!

Update 1
Chris Dillow draws from the research of Luigi Bosco and Kathleen D Vohs to argue that competition for power and excess financial pay-offs can crowd out altruistic behaviour.

Update 2
Chris Dillow makes the case for bonuses.

Update 3
Chris Dillow writes that large bonus incentives are not only not justified by efficiency considerations, but can actually backfire, with the result that intelligent observers are demanding an end to them.

Update 4
See also Dan Ariely writing about studies which show how larger compensation does not necessarily increase output.

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