A study soon to be published in the ILR Review by Marco Clemens from the IAAEU and the University of Trier explores the effects of bonus and profit-sharing payments on employee’s job satisfaction. Using German panel data, the study reveals that workers report significantly higher job satisfaction levels when their wages include bonuses that are not dependent on employee’s performance. This result holds largely irrespective of the bonus size. In contrast, profit-sharing only shows a positive association if the payments constitute a substantial portion of overall wages. The positive relationship between bonuses and job satisfaction is particularly strong for men, reciprocal workers (i.e., those more likely to respond to employers’ appreciation through increased effort), workers in the private sector, and those in small companies. For profit-sharing, only the latter factor moderates the relationship positively. These results, especially regarding reciprocity, suggest that unconditional bonuses function through different mechanisms – for instance, a gift-exchange mechanism – compared to incentives like profit-sharing.

The study has important implications for designing employee compensation packages. It suggests that bonus payments could be an effective alternative to performance-based incentives for boosting employee’s job satisfaction.