QotD: Bonus payments and bosses

[. . .] bosses will rationally search for more-informal ways of rewarding their best staff. Rather than writing down a specific, objective measure of performance, they give themselves discretion to reward "good work" without being too precise about what "good work" is. The thinking is, quite sensibly, that while they can't define good work, they can recognize it when they see it. And with this discretion over raises, promotions, and bonuses, they have plenty of flexibility to dish out rewards and punishments in line with what everybody knows but nobody could prove in court.

There the story would end, but for one important problem: Managers are lying weasels. If performance bonuses are purely discretionary, the boss can weasel out of paying them, and so the workers won't be motivated by them. Why would anybody believe a manager who promises raises and promotions, but can't be specific about what they will be and what his staff would have to do to earn them?

Tim Harford, The Logic of Life: The Rational Economics of an Irrational World, 2008.