The bonus share of flexible pay in Germany, Japan and the US: Some empirical regularities

Many compensation schemes consist of cash flow streams with different risk characteristics. For example, bonuses, which help align a firm's wage bill with business cycle fluctuations, are more variable than regular (fixed) pay. We investigate empirical regularities in compensation schemes involving risky pay which is contingent on certain random outcomes. Using data for Germany, Japan and the US, we find that the ratio of bonus pay to total pay increases as worker qualifications rise. This is consistent with another finding that the returns to human capital investment observed for bonus payments are larger than the returns observed for regular pay.