Cash Prizes for the Employee

The aim of the article was to analyze the genesis and construction of the prize money in labour law. In particular, the rationale of the prize was characterized: non-spam and discretionary. The article shows that from the legal dogmatic point of view, the construction of “discretionary bonuses” was developed in the 1970s, while the practice of applying the law in the following years. One new element that will appear in the jurisprudence practice is the reference to the prohibition of discrimination.

Subjective Evaluations: Discretionary Bonuses and Feedback Credibility

We provide a new rationale for the use of discretionary bonuses. In a setting with unknown match qualities between a worker and a firm and subjective evaluations by the principal, bonuses are useful in order to make the feedback from the firm to the workers credible. This way workers in good matches are less inclined to accept outside offers. (JEL D82, J33, M12, M52)

The Choice of Different Types of Subjectivity in CEO Annual Bonus Contracts

ABSTRACT In assessing the performance of the CEO, subjectivity by the board of directors is often present in one form or another. We specifically focus on: (1) the ex ante option to ex post override a formula-based contract (“discretionary bonus”), and (2) the ex ante absence of any formula in a contract (“subjective weights”). We argue that the two types of deviations are driven by different contracting problems, which relate to whether post-contract information does or does not affect the agent's optimal action choice. We refer to these different contracting problems as problems of risk and problems of noncongruity, respectively, and hypothesize that discretionary bonuses are used for risk-reduction purposes, while subjective weights on different performance dimensions are used for congruity-improvement purposes. Our results are consistent with our expectations, showing that the use of the different types of subjectivity is consistent with optimal contracting considerations. Data Availability: All data are publicly available from the sources identified in the text.

Discretion in Bonus Plans

ABSTRACT: This study examines discretionary bonus payments by firms to senior-level executives. Interpreting discretionary bonuses as the result of implicit incentive contracts, I analyze an analytical model that includes a contractible and a non-contractible performance measure. The model yields the primary hypothesis that discretionary bonuses occur when the outcome of the contractible measure is either low or high, but not when the contractible outcome falls in the medium range. Based on a sample collected from public sources, I find empirical support for the notion that discretionary bonuses are paid based on non-contractible performance measures that are related to future financial performance. Moreover, discretionary bonus payments occur significantly more often when the contractible performance measure falls in the tails of the distribution. In contrast, I do not find support for the predictions that discretionary bonus payments are related to the manipulability of the contractible performance measures or that discretionary bonus payments are related to the power of the executives in the companies.