Superiors’ Discretionary Bonus Pool Allocations When Agents Face Disparate Performance Risk

We examine how decision makers adjust their allocation decisions in risky environments, and how organizational context influences these decisions. Superiors often have discretion over bonus allocations, allowing them to make adjustments for the risk faced by agents. It is thus important to understand how superiors use this discretion and the organizational factors, specifically decision responsibility and availability of information, that affect their allocation decisions. We provide evidence that when superiors are confronted by inequality in agents' performance risk (i.e., uncertainty as to how effort translates to performance), they tend to sympathize through their bonus allocation decisions with those agents with greater performance risk. However, superiors are often charged with decisions, including initial resource allocations, which affect or create disparity in agents' performance risk. In this case, we find that superiors are not more, and potentially less, sympathetic to the disadvantaged agents compared to the setting without additional decision responsibility. Further, when information is available to superiors that can justify the initial resource allocation decision, they will actually favor the advantaged agents through their bonus allocation. Our results provide insight into organizational factors that affect how superiors use bonus discretion and make allocation decisions, and we demonstrate that available information can have a significant biasing effect in how superiors make these decisions. These results have direct implications for organizations, given the pervasiveness of discretion in bonus allocation decisions and organizational concerns for fairness and the job satisfaction of employees and their effects on overall performance