Bonuses and investment in intangibles

Traditional analyses of bonuses have focused on performance measures such as output or profit as the sole determinant of bonus pay plans. However, companies now use bonuses for a variety of purposes, including employee recruitment and retention and to obtain better outcomes in quality and customer service. These trends suggest that a host of strategic considerations influence company decisions about bonus payouts, ranging from traditional concerns such as employee performance to the company’s reputation among prospective employees and customers, stakeholder influence, and support for technological and organizational change as part of company plans to develop intangible assets. Using data from 2000 ELCS (European Labor Cost Survey) I investigate the determinants of bonus payouts, in particular how a company’s concerns about intangible assets affect its incentive pay plans. Consistent with a growing body of evidence, both individual and workplace effects are important in explaining the variation in the incidence of bonus payments. Specifically, the findings suggest that human capital investments are positively related to bonus payments