Expected value is not necessarily the way to go. I would rather be paid 100k Currency Units per year than a 50% chance of 210k Currency Units and a 50% chance of zero. Expected utility is more to the point.
Note also that part of the (dis)utility of unpredictable compensation comes from things other than the actual monetary value. You might find it exciting not knowing what’s coming. Or you might find it anxiety-provoking. If it’s a bonus scheme, you might take some satisfaction in the feeling that if your hard work helps the company succeed then you will get a little bit of the gains; you might initially feel that way but then reflect on what a small fraction of the gains you’re getting and feel grumpy about it; etc.
Expected value is not necessarily the way to go. I would rather be paid 100k Currency Units per year than a 50% chance of 210k Currency Units and a 50% chance of zero. Expected utility is more to the point.
Note also that part of the (dis)utility of unpredictable compensation comes from things other than the actual monetary value. You might find it exciting not knowing what’s coming. Or you might find it anxiety-provoking. If it’s a bonus scheme, you might take some satisfaction in the feeling that if your hard work helps the company succeed then you will get a little bit of the gains; you might initially feel that way but then reflect on what a small fraction of the gains you’re getting and feel grumpy about it; etc.