Discretion over Bonus Timing

We study bonus assignments by managers who have discretion over bonus timing, analyzing extensive personnel records and linked survey data from a multinational firm. We find that – even though the bonus system is intended to provide timely rewards – managers award most bonuses at the end of a year. However, employees report significantly higher levels of perceived recognition when receiving a bonus during rather than at the end of the year. We explore potential mechanisms driving bonus timing and employee reactions. Results from a field experiment suggest bonus delay is not due to managerial inattention. Rather, our evidence suggests that delay is driven by a precautionary savings motive and procrastination, leading to a "use-it-or-lose-it" spending spike at the end of the year. We furthermore provide evidence indicating that the strong association between earlier bonuses and recognition is not driven by their more surprising nature but rather by more immediate feedback provision