Library Header Image
LSE Research Online LSE Library Services

An empirical analysis of employee responses to bonuses and penalties

Van der Stede, Wim ORCID: 0000-0003-3005-2410, Wu, Anne and Wu, Steve (2020) An empirical analysis of employee responses to bonuses and penalties. Accounting Review, 95 (6). 395 – 412. ISSN 0001-4826

Full text not available from this repository.

Identification Number: 10.2308/tar-2017-0141


We examine how employees respond to bonuses and penalties using a proprietary dataset from an electronic chip manufacturer in China. First, we examine the relative effects of bonuses and penalties and observe a stronger effect on subsequent effort and performance for penalties than for bonuses. Second, we find that the marginal sensitivity of penalties diminishes faster than that of bonuses, indicating that the marginal effect of a bonus may eventually exceed that of a penalty as their value increases. Third, we find an undesirable selection effect of penalties: penalties increase employee turnover, especially for skillful and high-quality workers. These results may help inform our understanding of the observed limited use of penalties in practice due to their bounded effectiveness and possible unintended consequences.

Item Type: Article
Official URL:
Additional Information: © 2020 The Accounting Review
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HD Industries. Land use. Labor
Date Deposited: 20 Jan 2020 10:51
Last Modified: 06 Apr 2024 23:54

Actions (login required)

View Item View Item