Ask me to give from tomorrow’s bonus?
Note: This summarises the findings from the first stage in a larger research project. We are pursuing larger-scale trials, funded by an ESRC Impact Cultivation award. More information about partnering to test and implement Give if You Win is linked here.
If you won £100 million in the lottery, inherited £9 billion, or got a £100k bonus from your employer, how much of it would you give to charity? If I asked you after you won this, do you think your answer would differ? Evidence from social science suggests that it would (and this presents an opportunity for the third sector!). As well as raising interesting philosophical questions (‘are we as generous as we believe our future selves should be?’), this has practical implications for charitable fundraisers: it may be better to ask for conditional commitments from future gains.
In recent work, economists Christian Kellner, David Reinstein, and Gerhard Riener offered students a 25-50% chance of winning a £10-20 cash or voucher prize. Some were asked to commit in in advance ‘if you win, how much will you donate from this prize’ to one of two well-known charities. Others were asked to donate only after (and if) they won the prize. Across several contexts, students committed to donate roughly ⅓ more when they were asked before than when they were asked after. In other words, they were more generous with the conditional, uncertain prizes, than they were with prizes they had just won. (The donations and prizes were real, not hypothetical. In some contexts participants knew they were in an experiment, in some they did not.)
This complements work suggesting:
Bonuses are again (and perennially) in the news; millions of employees anticipate incentive pay, most notably in the City of London. Before the bonuses are announced many of these the employees are uncertain whether they will get one, and how large it may be. This offers a potential opportunity: ask bankers and others to make a commitment to donate a share of these bonuses. Governments can enable and facilitate this, in part through clarifying the legal and tax environment for such commitments.
Large inheritances and their tax treatment are a controversial issue, and the UK government has recently increased the tax-free allowance. Every year about 1-2% of personal wealth in the UK is inherited or gifted to children (equalling about 5-10% of national income). Some of these inheritances are no-doubt not fully anticipated and thus resemble a ‘bonus.’ The government could encourage potential heirs to pledge to donate a share of any future inheritance. The HMRC could provide tax incentives and the government could support a legal framework for doing this, and charities could offer recognition to people who make such commitments.
Indeed, some organisations are already following this logic. “Giving What We Can,” founded by Tony Ord, has asked students to make a giving pledge to donate roughly 10% of their future income. According to their website (accessed 4 April 2016) they have roughly 1650 members who have donated over $35 million (and pledged to donate far more). Similarly, the Founders Pledge asks tech entrepreneurs who have yet to ‘cash out’ to make a legally-binding commitment to donate 2% of their potential proceeds to a social cause of their choice.
Of course, further evidence is warranted, and these changes may be introduced slowly. However, the potential benefits are huge – including benefits to the major firms. Since the financial crisis bonuses have been under increasing public scrutiny as politicians call on bankers to “palliate their guilt” and give their bonuses to charity. High-profile ‘give if you win’ initiatives may help make the bonus culture more socially acceptable: when bankers succeed, so will charities.
 Thanks to the assistance of Agata Siuchininska, Thibaut le Forsonney, Rasif Alakbarov, and Harry Masters
 In 2014-15 UK bonuses totaled £42 billion. In the 2011/12 tax year, bonuses to UK workers totaled £37 billion, of which £13 billion was in the financial sector, at an average rate of £1,400 per employee (ONS, 2012-13). Over a similar period, individual charitable giving was £9.3 billion. In the United States, Wall Street banks distributed $26.7 billion in bonuses in 2013 (Office of the NY State Comptroller, 2014). Anecdotal evidence (from our personal correspondence) suggests that a significant share of this bonus income was not fully anticipated.“Most people at the top or the bottom of the performance level will know they’re (not) getting a bonus---people in the middle will be unsure until they’re announced. Among the people who know they’re going to get a bonus, the size of the bonus is uncertain until announced.”, Raj C: Hedge Fund Manager, London (2015). See also forum posts <http://www.quora.com/Bonuses/How-accurately-can-an-employee-predict-his-or-her-annual-bonus-in-advance-e-g-in-the-banking-industry>, accessed 7 Feb, 2015.