Managerial bonuses and subordinate mistreatment

Nikos Nikiforakis, Jörg Oechssler, Anwar Shah

Research output: Contribution to journalArticle

Abstract

Can performance bonuses increase the likelihood that managers coerce their subordinates into exerting high levels of effort when doing so promotes neither efficiency nor equity? We consider a laboratory setting in which managers compete to obtain a large bonus at the end of the experiment and the probability of obtaining it depends partly on the effort exerted by the subordinates. We find that managers are more than twice as likely to punish subordinates exerting “fair” levels of effort if they compete for individual bonuses than when there are no bonuses. This is not the case when they compete for pooled bonuses – giving managers discretionary power over how to share them with their subordinates – as most subordinates willingly exert maximal effort. A model in which individuals are assumed to care about equity captures subordinates’ behavior well. Managers’ willingness to coerce subordinates into exerting unfairly high levels of effort, on the other hand, cannot be readily accounted for by any of the existing models of social preferences.

Original languageEnglish (US)
Pages (from-to)509-525
Number of pages17
JournalEuropean Economic Review
Volume119
DOIs
StatePublished - Oct 1 2019

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Bonuses
Managers
Equity
Social preferences
Bonus
Willingness
Experiment

Keywords

  • Coercion
  • Disobedience
  • Hierarchy
  • Managerial incentives
  • Tournament

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Managerial bonuses and subordinate mistreatment. / Nikiforakis, Nikos; Oechssler, Jörg; Shah, Anwar.

In: European Economic Review, Vol. 119, 01.10.2019, p. 509-525.

Research output: Contribution to journalArticle

Nikiforakis, Nikos ; Oechssler, Jörg ; Shah, Anwar. / Managerial bonuses and subordinate mistreatment. In: European Economic Review. 2019 ; Vol. 119. pp. 509-525.
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