Brm: Impact of Bonuses on Employee Behavior

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3.4 Advanced Business Research Methods

Impact of bonuses on employee behavior

Group 3.01
J. Dikkers

Carien Beyer 1812781
Kim Klijnsmit 1871447
Myrthe Rustemeijer 1814362
Claudia Sanua 1857134

Date: 20/02/2011

Table of contents

1.1 Introductionpage 3
1.2 Research Questionpage 4
2.1 Theoretical Framework page 4
2.2 Hypothesespage 6
3.1 Methodologypage 8
3.2 Sample & Procedurepage 8
3.3 Measurement Instrumentspage 9
3.4 Questionnairepage 9
4.1 Resultspage 10
5.1 Conclusion
6.1 Reference list

1. Introduction

“English banks’ bonuses will rise into the billions this current year” (BBC news) “Top bonuses are 4000 times modal income” (Elsevier). Goldman Sachs ready to hand out £7bn salary and bonus package... after its £6bn bail-out” (The Dailymail)

Are these bonuses necessary? Do those top executives work so hard that they deserve these excessive amounts of bonuses? And what happens if these bonuses will be abolished from the workforce? These questions lead to our topic and research question: Is there a strong correlation between bonus incentives and employee performance. Using hypotheses we will investigate the impact of bonuses on employee performance by using variables such as motivation, job commitment and job satisfaction. This is a prominent topic in the news because high bonuses are a big factor in the current credit crises, yet the problem does not seem to be solved, even though everyone believes it is justifiable.

This paper starts with presentation of the research already done in the area of bonuses and employee behavior, which will be pointed out in the theoretical framework. After this, the methodology section, the sample of our research will be described together with the items of the questionnaire and a description of the performed analyses. Following will be the results if psychometric and hypothesis testing analysis. Finally, the paper will be concluded with the presentation of the results based on the research question and hypotheses in association with the assumptions of the findings of our research.

2. Research Question

The framework of this paper will be based on the following question:

Is there a correlation between bonus incentives and employee commitment, motivation and job satisfaction?

2.1 Theoretical Framework

Why are bonuses given to employees? Bonuses are said to be implemented to motivate current employees, attract new ones and maintain competitiveness. They are also beneficial to the company because firms can then pay less corporate tax. Bonuses are also used in the banking industry as a form of protection against risk takers. Paying greater bonuses to employees allows firms to pay less corporate tax.

The credit crisis that began in 2008 was largely blamed to the fact that bankers were receiving outrageous bonuses. The reason for this is that a typical manager of financial assets earns money depending on the risk he takes, the beta, and the value he contributes to the process, his alpha. Shareholders in commercial and investment banks will not pay the manager for returns from the high risk he takes but do, however invest in high alpha, because actually he is being paid to beat the market. Essentially, he is generating excess returns while not taking more risks.

The problem lies in the fact that managers are rewarded for compensation structures that are annually based on profits, but do not receive these rewards back when losses occur, thus there is an encouragement of fake alpha. Significant portions of compensation should be held in escrow to be paid only long after the activities that generated that compensation occur (Financial Times, 2010).

Frederic Herzberg (1959) suggested that there are two variables that influence an...
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