Abstract

While most people are paid by the hour or with a yearly salary, some are also paid bonuses. And, some are paid very large, all-or-nothing bonuses. The author's favorite recent example is from last summer when golfer Darren Clarke earned a $3-million bonus from his sponsor. But it was how the payout was structured more than the amount that so intrigued him -- his sponsor's payout was all or nothing. How people are paid is fascinating. It is particularly interesting in this case of very, very large bonuses. The sports odds that Darren Clarke would win the tournament going into it were roughly 200 to 1. Winning $3 million at odds of 200 to 1 calculates to an expected payment of $3 million divided by 200, or $15,000. One can argue whether in sports the adverse incentives created by kinked or all-or-nothing bonuses are low-harm. But these kinds of arrangements are increasing in popularity.

Document Type

Article

Publication Date

3-2012

Publisher Statement

Contents © 2012. Reprinted with permission from WorldatWork. Content is licensed for use by purchaser only. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

Download

Share

COinS