Strategy

Compensation: Pursuit of happiness

Spending your bonus on others pays off for you, too.

Taking your bonus pay and showering yourself with gifts won’t make you happy, but being generous will. Even among the most selfish employees, it was only the amount they spent on others that led to increased happiness, according to research by Michael Norton, assistant professor at Harvard Business School, and Elizabeth Dunn, assistant psychology professor at the University of British Columbia.

“There’s been a lot of research that ironically shows that money doesn’t buy happiness,” says Norton. “But maybe that’s because people buy flat-screen TVs versus things that really bring happiness.” The pair found that people do feel better if they spend just $5 of their bonus on others. Norton has yet to examine why this is so, but believes it’s linked to the idea of investing in others and the hope that such largesse will give them a positive return.

The researchers also discovered employees are unaware that spending money on others will make them feel better. That’s why managers should give staffers opportunities to be generous, say Norton and Dunn. For example, Google last year gave its AdSense clients $100 gift cards for DonorsChoose.org, which allowed them to choose where to make their donations. The researchers suggest companies could alter in-house donation programs to give employees a similar option.

As for whether employees derive the same degree of happiness from giving away their own money compared to someone else’s, Norton says they have just started to examine this. But he has a hunch that an employee will reap more happiness from giving away her own money than her employer’s.