Performance pay, monetary gifts, and the moderating role of wage level

We conducted a field experiment to compare the effects of financial performance pay and monetary gifts on employee performance. We randomly assigned store managers at a German discount supermarket chain to receive either performance pay based on profit increases or an unconditional gift in the form of a lump-sum payment. Our findings indicate that, on average, performance pay significantly outperformed gifts, yielding profit increases of approximately 8 %. However, managers’ base wages appear to moderate the effectiveness of performance pay versus gifts. Performance pay appears to have a stronger performance effect for managers with higher wages. In contrast, for gifts, we find tentative evidence of a stronger effect at lower wages. We argue that the effectiveness of both incentives depends on a reference point defined by the desired bonus-to-wage ratio (i.e. performance-pay-to-wage or gift-to-wage ratio). For performance pay, which can vary based on effort, higher-wage managers must exert more effort to meet this ratio. For gifts, which are fixed amounts, lower-wage managers may perceive the same bonus as more generous, which can strengthen reciprocity.

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Publication Details

Journal
Management Accounting Research
Published
2025-12-01
DOI
https://doi.org/10.1016/j.mar.2025.100956
Primary Topic
Experimental Behavioral Economics Studies
Type
article
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article

Performance pay, monetary gifts, and the moderating role of wage level

Raoul Isselhard, Kathrin Manthei, Timo Vogelsang
Management Accounting Research
Experimental Behavioral Economics Studies
article

Performance pay, monetary gifts, and the moderating role of wage level

Raoul Isselhard, Kathrin Manthei, Timo Vogelsang
article en

Abstract

We conducted a field experiment to compare the effects of financial performance pay and monetary gifts on employee performance. We randomly assigned store managers at a German discount supermarket chain to receive either performance pay based on profit increases or an unconditional gift in the form of a lump-sum payment. Our findings indicate that, on average, performance pay significantly outperformed gifts, yielding profit increases of approximately 8 %. However, managers’ base wages appear to moderate the effectiveness of performance pay versus gifts. Performance pay appears to have a stronger performance effect for managers with higher wages. In contrast, for gifts, we find tentative evidence of a stronger effect at lower wages. We argue that the effectiveness of both incentives depends on a reference point defined by the desired bonus-to-wage ratio (i.e. performance-pay-to-wage or gift-to-wage ratio). For performance pay, which can vary based on effort, higher-wage managers must exert more effort to meet this ratio. For gifts, which are fixed amounts, lower-wage managers may perceive the same bonus as more generous, which can strengthen reciprocity.

Management Accounting ResearchVol. 68
Vienna University of Economics and Business (AT), Rheinische Hochschule Köln (DE), Frankfurt School of Finance & Management (DE)
Openalex Percentile: Top 62%
Experimental Behavioral Economics Studies
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Performance pay, monetary gifts, and the moderating role of wage level — Raoul Isselhard, Kathrin Manthei, et al. · Management Accounting Research (2025) | TGRS Research Map | TGRS