Profit Based Bonus Reserve

This paper examines if a profit dependent reserve bonus structure is a more favourable option than straight salary payment to reduce the major negative contributions of a piece-rate bonus structure to the current economic crisis. The analysis is based on a model with two different compensation structures, which are both influenced by the state of the world. The overall conclusion is that the compensation structure with a profit dependent reserve is the most favourable option to reduce some major negative contributions of a piece-rate bonus structure to the current economic crisis. The findings in this paper show that this kind of compensation structure and straight salary payment can reduce the same amount of problems that are related with the current crisis. However, straight salary payment is incapable to maintain some advantages of bonuses, whereas a profit dependent reserve bonus structure is able to hold them.