BonusRigidityandFuturePerformance-Binghamton.PDF

*† Bonus Rigidity and Future Performance: Theory and Evidence William M. Cready Zhonglan Dai Guang Ma University of Texas at Dallas School of Management 800 W. Campbell Rd., SM41 Richardson, TX 75080 This version: April, 2012 ABSTRACT Drawing on the extensive economics literature on wage rigidity, we examine bonus rigidity and, in particular, the implications of downward bonus rigidity for future performance. We find distributional support for downward rigidity in bonus payments. More importantly, we find that bonus cuts have distinct negative implications for future firm performance. Indeed, our evidence indicates that bonus rigidity is the primary driver of the positive relation between unexpected cash compensation and future performance documented by Hayes and Schaefer