The relationship between bonuses and firm performance – new research article by Balázs Reizer in Finance Research Letters

I investigate the relationship between bonus payments and firm performance using a large-scale Hungarian linked employer-employee database. I found that firms with a 10% higher share of workers with bonuses have a 3.9%–4.6% higher value added per worker and 3 percent higher total factor productivity. This relationship is linear in the share of workers receiving bonuses, suggesting that bonuses are more effective when more workers receive them within a firm. At the same time, the relationship between firm performance and bonus payments is independent of labour share and firm size, although it is stronger in the service sector.