We demonstrate that bonus payment schemes in firms with flat hierarchies are optimal when workers are homogenous and effort is unobservable. Whereas noisy environments generate less effort, firms compensate for this by offering higher bonuses to ensure efficiency. Policies that reduce bonuses in the financial sector may have to be implemented at a cost to efficiency.
|Number of pages||6|
|Early online date||12 Nov 2019|
|Publication status||Published - 2019|
Bibliographical noteWe thank participants at the European Association of Labour Economists (EALE) 2018 Conference, seminar participants at the University of Trier, Tim Barmby, Tor Eriksson, Laszlo Goerke and Alberto Palermo for valuable comments. We are also grateful to an anonoymous referee and the editors of this journal for helpful comments. The normal disclaimer applies