Accounting Seminar（2018-24）

Topic: An EmpiricalAnalysis of Employee Responses to Bonuses and Penalties

Speaker: Wim A. Van der Stede, London School of Economics and Political Science

Time: Wednesday, Dec 19th, 14:00-15:30 p.m

Place: Room K02, Guanghua Building 2

Abstract:

We examine how employees respond to bonuses and penalties using a proprietary data set from an electronic chip manufacturer in China. First, we examine the relative effects of bonuses and penalties and observe a stronger effect on subsequent effort and performance for penalties than for bonuses. Second, we find that the marginal sensitivity of penalties diminishes faster than that of bonuses, indicating that the marginal effect of a bonus may eventually exceed that of a penalty when their values are sufficiently large. Third, we find that penalties increase employee turnover especially for skillful and high-quality workers. Finally, we extend our analyses to implicit gains/losses and find a negative impact of both implicit gains/losses, where the effects of implicit losses are stronger. These results help inform our understanding of the observed limited use of penalties in practice, their effectiveness and possible unintended consequences, and also how these effects may extend into implicit incentives.

Introduction:

Wim A. Van der Stede is a professor at London School of Economics and Political Science (LSE). His main research interests are in management control systems like budgeting performance measurement and incentive systems and corporate governance like executive compensation and internal controls.

//www.lse.ac.uk/accounting/people/academic-faculty/wim-a-van-der-stede?from_serp=1

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