Compared to the US, the German variant had a negative impact on job satisfaction and job performance.
(Photo: IMAGO/Addictive Stock)
A board member recently told me that his medium-sized company had eliminated annual bonus payments. Employees would always have felt undervalued if they had only received 1,900 euros in a year instead of the usual 2,000 euros.
On the other hand, hardly anyone would have tried harder if the bonus had increased by 100 euros. So the company just raised everyone’s salaries to end the bonus discussions.
Behind this case is a more general problem of bonus payments. According to standard economic theory, they should increase performance. Since more money contributes to happiness, at least in the short term, bonuses should also increase job satisfaction.
However, humans are creatures of habit. This leads to negative sentiment when bonus payments are lower than expected. He also likes to compare himself. Reference points, such as orientation to the average, play a decisive role here.
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The economists Axel Ockenfels, Dirk Sliwka and Peter Werner have proven this with data from an international German company. At the end of the year, the more than 5,000 managers in Germany and the USA received bonus payments that depended on their supervisors’ assessment of their work performance. The focus of their analysis was the approximately 70 percent of managers whose performance was rated as “meets expectations”. For them, the bonus had to be in the range of 80 to 110 percent of the average bonus in that department.
Effects of the experiment
In principle, the bonus system was the same in both countries, with one seemingly insignificant difference. In Germany, for reasons of transparency, managers were told what percentage of the average bonus payment they had received in their department. In the USA, on the other hand, everyone only found out the amount of their own bonus, without any further information.
Matthias Sutter is Director at the Max Planck Institute in Bonn and author of “The Human Factor or What Matters in Working Life”.
(Photo: ECONtribute/Dustin Preick)
Compared to the US, the German variant had a negative impact on job satisfaction and job performance. If a manager received a bonus that was over 100 percent of the department average, it had no impact on satisfaction or performance.
However, if the bonus was below 100 percent, job satisfaction and performance fell sharply because those affected perceived the classification as below average as derogatory. This was true even if the reference point fell just below 100 percent.
In the USA, on the other hand, where the employees did not have the average bonus reference point, there was no connection between absolute bonus payments and job satisfaction and job performance.
Bonus programs should therefore take into account important points of reference for employees, because otherwise they can be counterproductive.
More: Sociologist Martin Schröder – “More than 2200 euros net do not make you happier”