Pay Me Now or Pay Me Later

Abstract

Building on agency and power theories, this study addresses the relationship between bonuses and promotions. The author tests whether these incentives are traded off, reflecting a balance between insurance and incentive provisions in employment contracts. Analyses of data for 8,549 employees of a financial firm support no trade-off: Individuals' who earn bonuses are more likely to be promoted than those paid on a salary-only basis, after controlling for performance. This finding holds across different occupations and is especially strong for managers. Because employees in higher levels benefit most from multiple rewards, power explanations best describe the incentive mix observed here.

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