Red Envelope A Preferred Incentive Measure For Chinese Employees



Surprisingly little has been written about the Chinese Red Envelope system, even though it is widely embraced. The holiday bonus for many employees in western countries comes after their most important traditional holiday, Christmas Day. In China, this is different. Many Chinese employees receive their bonuses before the Chinese New Year or the Spring Festival, an equivalent Chinese festival to Christmas Day. It is called Nian Zhong Jiang (year-end bonus) in Chinese. In most cases, the year-end bonus comes in three different forms:

Guaranteed bonus: this type of bonus is like the word implies guaranteed no matter what financial situation the company is in as long as it delivers a profit. The bonus does not depend on how well employees have performed in the passing months. Instead all employees in the company get a double or triple extra monthly salary as a token of gratitude from the owners. The guaranteed bonus is a universal benefit and rules or regulations concerning its specifics are specified as a part of the organization's human resources policies.

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Variable bonus: this kind of bonus varies with the performance of both the company's and employee's performance. Individual performance explains the discrepancies between the variable bonuses among employees. The rules governing the amount of money are often openly discussed and known to all employees. For example, in a corporation, once an employee successfully reaches the performance target prescribed, he or she will be entitled to the full amount of bonus assigned while as the employee who gets half the work done only receives half of the bonus.

Red Envelope: this is a traditional form of bonus in Chinese culture, a red colored envelope usually filled with a certain amount of cash. The red envelope also expresses good luck or best wishes, and can be used on special occasions, such as on Chinese New Year, to a younger generation or for weddings to a newly married couple. In this paper the

Red Envelope will refer to one type, the year-end bonus, which is awarded to employees, usually before the Chinese New Year. The size of each bonus is determined by the Chief Executive Officer or the owner (in China, usually one person holds the two positions) but mainly in proportion to employee work performance during that past year. Other variables such as the personal relationship with the boss and the length of service in the company may also be important for this kind of bonus.

In practice, the guaranteed bonus is most often seen in foreign-invested companies while as the Red Envelope is the common reward tool employed in private businesses in Chinese owned companies. Most well-organized companies largely adopt similar variable bonuses to motivate their employees. One poll conducted by in 2007 gives an idea as to the spread of each of the bonus types. According to the survey, 28.3 percents out of 3551 employees (mainly from urban white-collar organizations) indicated that their companies give out guaranteed bonuses totaling 26.5 percent of their total salaries in the form of Red Envelopes and 22.44 percents in variable bonuses.

Since China opened up for foreign investors in the south and eastern parts of the country there has also been an influence of western management thought, including different remuneration systems (Luk, Vivienne W. M. and Chiu, Randy K. 1998). The bonus system is one of these remuneration forms. As Rosalie L. Tung (1981) puts it, "the current practice of using bonuses reinstated in the spring of 1978" and "practically all enterprises in China now use bonuses". Actually the percentage of bonuses in the standard wage of Chinese employee now amounts to 40 percent (Chiu et al. 2002) from an average of 10 to 25 percent a decade ago (Miller 1979; Grove et al. 1994). That suggests why so many articles are involved in studying the incentive effects of bonus (Yao Shujie 1997; Meng Xin and Perkins Frances 1998).

This paper focuses on one form of bonuses, the Red Envelope and its incentive aspect in view of the Chinese employee's own beliefs in this form of remuneration. The foreign investors locate their operations mainly in the South or East China, so the existing literature concerned by and large build on data or empirical researches from these regions. Today the Chinese Government advocates balanced regional development and encourages the enterprises abroad or in the developed areas of China to carry out investment and trade in Central China (the Eleventh Five-Year Plan for National Economic and Social Development). This study catches this development and collects data from central part of the Henan Province.

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In this paper we review some related theories and explore their relevance for our research. On the ground of the relevant literature and previous research conducted we propose a set of hypotheses concerning the Red Envelope. We then present the empirical data and our findings and draw some conclusions.

Concepts and literature review

In this section, we examine some popular incentive theories and apply them to our study.

The remuneration systems of any organization, including the salary, the incentives and all benefits target human needs. Human needs are one of the determinants of human behavior as developed in the social sciences. Under proper conditions the incentive mechanism can release great creative powers which again can be transferred to profits for an organization. Thus incentives in organizational setting can be understood as the process of analyzing the individuals' needs, and fulfilling these needs, according to the interests of the enterprise. Thus motivating the individual employees' needs can be seen as a first step towards achieving the goals of the enterprise. Once these goals achieved, the needs of employee will be satisfied, at least to some extent, much according to the model (figure 1).

Figure 1. Incentive process in organizational setting










Human motivation theory

According to Maslow, all human needs can be classified into five sets and graded in a hierarchic form (Matteson and Ivancevich 1999 ). These are from the bottom up physiological needs, safety needs, love needs, esteem needs and need for self-actualization, where needs are defined as internal states which make certain outcomes appear attractive (Pindur et al. 1995). Maslow's human motivation theory suggests that the most proponent needs are the key motivators of human behavior. That means that the higher needs will not appear before the lower needs have achieved a minimum of satisfaction. The lower needs will no longer drive human behavior as they will be minimized or forgotten. According to Maslow, few persons in society enjoy the satisfaction it is to achieve all layers of needs, and most people have different wants. Not all of these wants can be fulfilled through monetary remuneration, but some can.

Since money can be a tool to assist human beings fulfill their physiological needs (i.e. buy food), needs for esteem (i.e. for many large fortune symbolizes hard work) and self-actualization (i.e. even money can be a goal here), so can the Red Envelope, see here as a finer monetary and culturally specific mechanism in Human Motivation theory.

Maslow's theory builds on previous theories by defining various levels of needs and describing corresponding motives. Yet, it is not perfect. Its simplistic form and limitations have resulted in much criticism (i.e. Wahba and bridgewell 1976, Neef 1991, Neher 1991, Aamodt 2007). Thus a larger complexity is advocated by many. Nevis (1983) proposes a revision of the hierarchy in a Chinese situation to reflect Chinese collective culture. Maslow himself admits that biological, cultural and situational factors will almost always determine the specific of the individual. So for most parts, human motivation theory stands up quite well with much of its critique. It offers insights on human needs and underlines the outset of our understanding of other motivation theories, including Adams' equity theory (Adams 1965), Vroom's expectancy theory (Vroom 1964) and Skinner's reinforcement theory (Skinner and Ferster 1957). We will discuss each one as relates to our problem.

Equity theory

The theory suggests that employees assess the equity or fairness related to their specific job input and outcomes with those of others who are comparable to themselves (Bowditch et al. 1997). Equity is an individual's beliefs that she or he is being treated fairly with the forms of external and internal equity. Inequity is in an adverse situation. External equity or Inequity exists when employees in one company compare their job performance and pay with those of similar jobs in other companies. Internal equity or inequity happens when relative value of job performance and pay are compared within one organization. According to equity theory if rewards are to motivate employees, they must be perceived as being equitable and fair. Employee's perceptions of fairness have an impact on their performance. Because most inequity results from underpayment, one of three outcomes of external or internal comparisons, its byproducts merit further reflection. When employees feel unfair treatment, either perceived or real, she or he might turn to the following alternatives (see Figure 2):

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A. to adjust the ratio of outcomes and inputs by either requesting for more rewards or alleviating efforts

B. to leave the present companies s/he is working for, or

C. other actions.

Figure 2. Model of equity theory

outcomes/inputs (self) = outcomes/inputs (others)?




alter i/o




Equity theory suggests that an employee tend to compare his or her Red Envelope with others. This may encourage or discourage the degree of effort the employee put in the later time. In this case, equity is the one factor to look into. However, equity theory bears little practical advantage to management as some critiques suggest. Carrell and Dittrich (1978) argues that employee might evaluate the system overarching the ratio between specific job inputs and outcomes besides the ratio itself. For instance, an employee might judge that his or her compensation is equitable to other employees', but doubt on the fairness of the entire compensation system. In addition, each individual's perception of equity or fairness is contingent upon many variables, such as education background, working experiences, interaction with others, etc.. Hence, it would be frustrated for the management to identify them, let alone to set up a usable model. Nevertheless, equity theory reminds us to keep an eye on this magnifying and competing human mind.

Expectancy theory

Constructed on the premise that the amount of efforts people input depends on how much rewards they expect to attain in return, expectancy theory states principally that motivation plus effort of employee leads to performance, which in turn leads to outcome or rewards though the motivation is contingent with how much employee want something and how likely they would contribute to.

The expectancy theory deals with two aspects. One is cognition, and the other is process. By cognition, it refers to expectancy theory stress people's perceptions, judgments and wants. In the incentive equation like incentive/motivation = valence x expectancy, both valence and expectancy are based on people's perceptions and assessments. Meanwhile, it is a process theory because it contains three major components, through which it attempts

F. Li and K.S. Søilen 5

to illustrate how the motivation take place. The components are valence, instrumentality and expectancy. Process A in figure 3 represents expectancy process, where the individuals assess the possibility that certain effort will lead to certain behavioral performance. This process is also referred to as effort-to-performance expectancy. Process B is called instrumentality or performance-to-outcome expectancy. It is an individual's assessment of the possibility that working performance will result in certain valued outcome. Expressed in common word, the things get done are for pay. Valence refers to the worth or attractiveness of an outcome individual perceives or thinks of.

Figure 3, Expectancy theory

B: instrumentality

A: expectancy







In this model, the valence (worth of outcome) plays a vital role, as a pump station, of transferring energy to other components. For this reason, Vroom's theory pays more attention to outcomes or reward compared to Maslow's human needs theory. Furthermore, this theory does not content with self-interest rewards but associate the rewards with individual's expectation and contribution they assume they can make toward those rewards. In one word, the desire for outcomes or rewards motivates employee. On the other hand, the expectancy theory could also overlay with Maslow's theory. Maslow's theory could be used to explain which outcome people are motivated by based on satisfying their certain needs, with Vroom's to describe whether they will make efforts based on upon their expectation.

In Vroom's theory, expectation and reward assessment lead to individuality among people, thus this motivation theory count individual perceptions and personal experiences into the model. It is a credit point, some say. But it is an attack heading for some critics, who argue no universal tool of outcomes to individuals was offered (Miller 2005). Anyhow, as an old Chinese saying goes that "One flaw can not obscure the splendor of the Jade", the expectancy theory guide us in a most effective fashion to predict human behavior. Accordingly, expectancy theory is the core part of motive theory by pointing out the explicit linkage between rewards (i.e. the Red Envelope) and performance (i.e. work done).

Reinforcement theory

It proposes that social behavior is governed by external events and would approximate to the eventual desired behavior through a shaping process. The basic premise is that a certain behavior will occur with high frequency if pleasant consequence or the removal of unpleasant result directly follows it. The shaping process is achievable by way of positive and(or)negative reinforcement. Positive reinforcement refers to the consequence that gives rewards positively encourages that reoccurring of certain behavior. Negative reinforcement, on the contrary, means that the consequence that receives punishments discourages the reoccurring of certain behavior. In reinforcement theory a combination of rewards and (or) punishments is used to reinforce desired behavior or extinguish unwanted behavior.

The remarkable contribution of reinforcement theory to understanding human behavior is that it nails down the idea: consequences influence behavior. So if taking the Red Envelope as the outcome, then it would impact and shape employee's behavior.

Summary and theoretical application

Among above-mentioned theories, we regard the expectancy theory as a predominant one

because it could be a beneficial tool kit to thread other theories together. As discussed early, the expectancy theory suggests individual has their own valence or preferences to outcomes. Those preferences tend to respond their underlying needs state. This is the relation with human motivation theory. The equity theory also could fit into the expectancy

6 F. Li and K.S. Søilen

theory. Equity theory indicates that individual will compare their outcomes with others. If unfairness found, they would adjust their input effort to keep the balance of the ratio between outcomes and inputs. Reinforcement theory, from other aspects, strengthens or weakens the relation between efforts and outcomes by putting individual past experience as positive or negative reinforcement. The other reason is that expectancy theory is also functional utility to predict human behaviors. Generally speaking, human being consciously makes their efforts in accordance with the outcomes that efforts bring out, and this thought tends to direct or guide their behaviors.

Being a form of year-end bonus, the Red Envelop is undoubtedly the reward the Chinese companies offered to employees. On thing about the Red envelop, we hold it for sure, is that cash inside help to satisfy the Chinese employee's certain needs. Implication of motivation theories suggests that we should exam whether this valence is the Chinese employees expected, whether there is explicit linkage between rewards and performance, the fairness or equity of the outcomes and the reinforcement effect of the Red Envelop.


Above mentioned incentive or motivation theories in general focus on the satisfaction of the needs that is initially proposed by Maslow. Or to say it in another way, these theories largely deal with the question of "what outcomes or rewards attract individual's efforts". Dr. Michael LeBoeuf (1989) argues in his works that money and recognition are the most powerful reward and "the things that get rewarded get done" (LeBoeuf et al. 1988).

Hypothesis 1

Reinforcement theory suggests positive reinforcement is observed when behavior is followed by a consequence that increases the behavior's likelihood of reoccurring. According to Dubrin (2007), giving recognition can be considered as a direct application of positive reinforcement. That is to encourage the reoccurring of the proper behaviors. "Recognition is a strong motivator because it is a normal human need." as Dubrin (2007) indicates, and "recognition is also effective because most workers feel they do not receive enough recognition". Recognition may vary in different types including oral, written or material reward. Jenifer Labbs (1998) states employees tend to regard recognition as a gift. The Red Envelop owns both functions. It originates from the gift tradition in Chinese culture (Siu 2001) and it seals with cash inside. In this case, we come to:

H1: Chinese employees who received the Red Envelope feel their work were recognized by the employers.

Hypothesis 2

In most persons' view, the principal reward is payment. In addition, others may include, say, work interest, promotion and participation in decision making. Most payment are visible in money such as basic salary, bonus, various allowance. "Money isn't everything, but it is the best metric" (Lazear 1998, p379). It is a metric for self-achievement, success and social status. "Although money has only limited value in satisfying many higher levels of the needs, it can become the focus of interest if it is the only means available" (Pindur et al. 1995, p44). In developing countries, people are becoming more materialistic or cash mentality (Tang et al. 2000b; Chiu et al. 2002) as fast economic development. China is in the list of developing countries, so it would be reasonable to infer that cash does motivate Chinese employees' performance though its impact on performance quality is controversial issue. Further, the size of reward or amount of cash does have some impact on individual's performance. Equity theory and expectancy theory suggest such mechanisms.

As the basic ideas of equity theory illustrated, employee will adjust the ratio of inputs (i.e. performance) and outcome (i.e. payment, bonus) should unfair does exit through comparison with that of others. They may either change the efforts of inputs or seek more returns. Under same principle, this theory implies that greater awards should lead to equally greater

performance as employees keep the balance of the ratio of their performance to the perceived value of their pay.

Expectancy theory clearly states that the relationship between reward and performance impacts the amount of efforts inflow. This is one of the foundation stones

F. Li and K.S. Søilen 7

upon which pay-for-performance system are typically built. If employees assume that their greater efforts result in higher performance, while higher performance in turn leads to the bigger reward, then the system will guide employees to perform better.

The Red Envelope as year-end bonus, surely, is a reward to Chinese employees. We propose:

H2: the Red Envelop holds positive correlation to the performance of employees.

Hypothesis 3

Bonus is one of most important components in motivating employees (Chiu et al. 2002). As fast development of market economy in China, the entrepreneurial spirit flourishes all over the country. The value of the Red Envelope one received not only represents its mony value inside but their job well-done, further their economic and social status as well. Hence the Chinese employee tend to make assessment of their Red Envelope and to compare with others inside or outside their host companies. As equity theory puts, if reward is to motivate employees, the reward must be perceived as being equity. Hence if hypothesis 1 and 2 are supported, the Chinese employee would weigh this reward being fair. Upon those thoughts, we suppose:

H3: the Red Envelope is truly appreciated by the employees in term of equity or fairness.

Research methods

This empirical study employs both quantitative and qualitative methods because each method performs different functions in business research (Ghauri et al. 2005). Quantitative method refers to quantification of the data collected through the questionnaires so as to draw the meaningful statistic conclusion and to prepare testing the hypothesis. The hypothesis, however, is developed by qualitative method.

Data and sample

We totally handed out 164 questionnaires to the employees mainly working in the wholesale & retailing market located at suburb of Zhengzhou City, of which 108 was completed. In the market compound, over 100 companies trade steel products such as bar steel, angle steel, sheet steel, etc.. The companies hire as few as I full-time employee in number to more than 100 employees in the largest company. Their academic background varies from elementary school to tertiary education (10.2% elementary, 17.6% secondary, 72.2% high school and tertiary education, n = 108). We presented respondents' academic background as the basic information because year of education does influence their comprehensions of the key questions and the quality of their answers. Historically speaking, the number of Chinese citizens in middle and high or higher education, according to the national population census in recent years, increases with the percentage of elementary educated citizen in total population decreasing (source: The sampling results observe this trend.

Upon the received 108 questionnaires, we found all are usable, representing proximate 65.9% response rate. The high response rate is due to the contribution of the employees in 6 companies, where we are acquainted with the owners and is permitted to conduct interviews. Personal interviews benefit data collection. It avoids low response because questionnaires distributed by carriers or cyber system usually leave untouched or unread. Secondly, for the reason of respondents seldom filing in such questionnaires, it enables us to grasp the meanings of the respondents' answers and correct obvious misunderstanding. Thirdly, an brief explanation to the data application and directly submitting the answer sheets to us lessen the respondents' worries and suspicions of data misusing, especially in favor of their own employers. That is why no company names are mentioned in the study.

Some points for notice

Translation of questionnaires

The questionnaires serve this study originally in English. Translation into Chinese is

necessary and facilitates the respondents' comprehension of the questions. Back and forth discussion with some senior English-Chinese Lecturers effectively diminishes the possibility of bilingual problems. But there is no guarantee to smash this linguistic matter.

F. Li and K.S. Søilen

Possible errors in

Every coin has two sides, so is the personal interview. The other side is that some bugs may fly in. The interviewed respondents might take our words as hints thus they might follows our ideas not presenting theirs. To avoid this situation, we just present them oral explanation, no written sample was provided and no specific example was given. Further, because of being unfamiliar with this kind of questionnaires, the respondents are inclined to choose moderate figure in the scale. This phenomenon slightly mirrors in the answers to question 1 and 4 and 10.

Another noticeable matter is that when being asked whether the respondents received or not the Red Envelope in the basic fact questions, 11 (10.2%, n=108) respondents replied they never did. We can assume, hence, their answers to some real case questions are based on their mind thinking. Anyway, we count their questionnaires in because this study is to reveal their attitudes rather than just a real case investigation. This consideration might include some errors in. However, by this we would achieve a genuine random sample. Meantime, 89.8 percent respondents' positively received the Red Envelope indicates this sample is usable and ready for analysis.


Except three basic subjects, 10 questions list in the questionnaires targeting three hypotheses. Question 1 and Question 2 aim to hypothesis 1. Question 3, 4, 5, 6, 10 are responsible for hypothesis 2. Other questions are supplementary and provide defense materials for hypothesis 3. In order to measure the strength of the positive answers to each question, we employ five-point Likert scale to specify different degrees. The following are the details.

H1: Chinese employees who received the Red Envelope feel their work were recognized by the employers.

Table 1. Answers for Q1 and Q2

Questions about

Answers/ Percent

(n = 108)

< 20%










Q1. Is it a recognition of contribution

No: 7


Yes: 101













Could name others better than the Red Envelope

No: 43


Yes: 65


Other named recognitions including promotion, paid holiday, apartment, automobile, which last two enjoy high frequency. Over 93% (n=108) respondents regards the Red Envelope as the recognition of their work, of which 1/4 (25.83% = 15.74% + 10.19%) strongly believe its recognition function while 1/3 (33.33% = 12.96% + 20.37%) respondents slightly recognize that function. The reason for so much positive opinion might be some respondents take it for granted as the Red Envelope in the Chinese culture is somewhat a "must" to express good wishes to the offspring and gradually the Chinese business circle adopts it to express the gratitude for employees' working (Siu 2001). Question 1 exams the respondents' perception to the concept of the Red Envelope. The result points out the Red Envelope marks with the trait of recognition in nature.

Upon question 2, around 40% (n=108) respondents said no to this question, which means many respondents do think the Red Envelope is good for recognizing their job done and better than other forms of recognition. When it comes to other recognitions, promotion, paid holiday, cash, apartment and auto are mentioned. However, last three items, along with the Red Envelope, essentially belong to same catalogue-financial rewards. Those rewards the respondents mentioned tend to respond their needs state. The data also show that recognition of work performance has some other varieties with the Red Envelope being one of them. Forty percents positive responds infers that the Red Envelope undertakes rather high shares of recognition for employee's work in their view.

H2: The Red Envelop holds positive correlation to the performance of employees.

Direct response to the question 3 (table 2) indicates about 65% (n=108, 64.81%=16.66% +27.78% +20.37%) respondents does believe the Red Envelope has closer relation with their actual or perceived working achievement. Rather, 48.15% (27.78% +20.37%) of them

F. Li and K.S. Søilen 9

exemplifies more intimate connection between work achievement and the Red Envelope. One conclusion in "Retaining and motivating employees" (Chiu et al. 2002) fully illustrates this point by the sentence of "in order to motivate people…individual bonus…are the main concern of people in China". The fact the Red Envelope contains year-end bonus makes this respond acceptable.

When we asked from opposite point (Q4), 81 percent (n=108) respondents will make a decision to stay or leave the host company upon how much cash they received in the Red Envelope. Eighteen percent (8.33% + 9.26%) respondents surely leave the company only because of dissatisfaction with the Red Envelope.

A little surprise we are to see only 50% (33.33%+8.33% + 9.26% ) respondents shows that their decision on staying or leaving the host companies heavily based on the Red Envelope with 65% (Q3) respondents believes closer relationship between the Red Envelope and work achievement. A big difference it is! A possible explanation would be other things like corporation culture, hard to find a better job, etc. synthesize this result. Actually there so exist high turnover in the investigated companies. As the respondents' tenure period for the present employers suggests that just 33% (35 of 107) of total respondents have been working in the current company for 5 years or more. No evident to say this problem attributes to the Red Envelope from the limited information. (table 3)

Table 2. Answers for Q1 to Q6 and Q10

*adjusted data, for the purpose of total 100%

Questions about

Answers/ percentage

(n = 108)

< 20%










Q3. connection to work achievement

No: 6


Yes: 101












Q4. Leave or stay based on cash inside

No: 20


Yes: 88












Q5. Expect more or not in good year

No: 0


Yes: 100












Q6A Really get more in good year

No: 37


Yes: 71


Q6 B.

If no, will you leave

leave: 22


n = 37)

stay: 15


n =37)

Q6 C.

How much Red Envelope contribute to leave

(n = 22)



(n = 22)



(n = 22)



(n = 22)



(n = 22)



(n = 22)

Q10. Do the red envelope motivate your work

No: 4


Yes: 104












Table 3. Basic information: years of working for current employers

Working years

Total (%)

1-2 years

3-4 years

5 years or more









* One respondent indicates he/she has worked in present company for less than half year.

On the other side, the respondents overwhelmingly do expect more cash in the Red Envelope when both they and their companies did better then that of last year. This case fits the expectancy theory quite well. Expectancy theory suggests an instrumentality is

referred to as a performance-to-outcome expectancy (Dubrin 2007). It is no wonder employee expects more outcome or reward when performing better. It also suggests size of the reward amounts will have an impact on employee's behavior. We will see what happened from data of real case questions.

Did the respondents really get more reward/cash? According to answer to Q6 (Table 2),

10 F. Li and K.S. Søilen

over 65% respondents did get what they expected-more cash in the Red Envelope, but not all of them. Hard to guess why the left respondents did not gain more valuable Red Envelope! The reasonable words might be that those employees thought they did better than last year but their employers did not, or other factors like personal relationship with employers and serve length dominate employer's decision. Nevertheless what we concerned is 34% respondents' next move.

The figures in table 2 (Q6B) suggest that about 59% (22 of 37) of those who did not receive bigger envelope in good year would decide to fire the present employers. No one choose the lowest figure in 5 degrees scale. All 22 respondents attach relatively high possibility to quit their job because of the Red Envelope, representing 20.37% (22 of 108) of total respondents.

By summarizing, we asked whether the Red Envelope motivates their work. The strongly positive answers capture 64% (35.19% + 17.59% + 12.04%) of total responds. This finding goes with old Chinese sayings hand in hand, that is, do what you get paid; and follows other researcher's findings, such as "year-end bonus is one of the most important factors in motivating the local Chinese employees" (Chiu, et al. 2002)

H3: the Red Envelope is truly appreciated by the employees in term of equity or fairness.

Though 75 respondents reports that their companies do not forbid to openly discussion about the Red Envelope (see table 4), 4 more respondents (79 in answer to Q8) do know their colleagues' cash bonus contained by way around. At same time, 33 respondents said there are rules concerned. No specific data is available for analyzing how much companies investigated has such regulations. It may also be the case that some answered yes to this question, while the others in the same company said no.

Table 4 Answers for Q7 to Q9

Questions about

Answers/ percentage

(n = 108)









Q7. Allowed openly

discussion or not

No: 75


Yes: 33


Q8. Know other's Red Envelope anyway

No: 29


Yes: 79


Q9. Reasons to know (n = 108)








8.34%** adjusted data for the purpose of total 100%

Why 79 respondents are eager to know other's Red Envelope? The equity theory indicates employee tends to compare the ratio of their reward and efforts with that of others. Whether our study fits the theory or not remains question. The respondents take their efforts to know other's cash bonus in the Red Envelope is for the reason of, as in table 4, curiosity (39%) and fairness (33%) occupies the most important reason for digging out others', followed by reference (19%). The results seem supporting what equity theory suggests because the fairness ranks number 2 in the list.

Discussion of results

The result of data shows that the Red Envelope, in respondents' opinions, earmarks with recognition characteristic. And it takes relative high shares in the family of recognitions for work performance. Over 93% of total respondents acknowledge the Red Envelope as recognition of their achievement, which is 3% ahead of those who received the Red Envelope in the survey (about 90% respondents received the Red Envelope in their past employment). This fact well identifies one trait of the Red Envelope-recognition. Still almost 40% of total respondents prefer Red Envelope than other forms of recognition. This result endorses the

suggestions from the literature that monetary recognition/reward is a kind of recognition. Therefore, employees who received the Red Envelope absolutely feel their work recognized by the employers. Hypothesis 1 stands on its feet.

Regarding of the relation between the Red Envelope and work performance, the data of questionnaires suggest that almost 95% respondents link Red Envelope with their

F. Li and K.S. Søilen 11

performance, of which 65% see closer connection existed. The data also show that 81% respondents would choose to stay or leave the current employers according to how big the Red Envelope is, and all respondents expect more money in the Red Envelope when they and their companies do better than in last year. It seems to suggest that the Red Envelope is positively related to work performance and motivates the employees, which is proved by the answers to Q10. The findings agree to previous research on motivation function of bonus as already discussed in the result. Not all of those who do not receive bigger Red Envelope in good year would take action to quite. That fact, however, reminds us that the motivation function of the Red Envelope is limited to some extent. Nevertheless, we could see that the Red Envelope holds positive correlation to the performance of employee. Thus hypothesis 2 is true.

As stated above, the respondents acknowledge the recognition function of the Red Envelope and its close linkage with the work achievement. Is it right to say that hypothesis 3 stands? The supporting evident comes from the data that shows fairness is not the respondents' first concerns and our inference. Equity theory suggests that reward must be perceived to be fairness as to motivate employee. Combining the facts that H1 and H2 stand, the Red Envelope should be fairness in employee's mind otherwise it would not be the case that almost 95% respondents indicate the Red Envelope motivate them. This issue bears rather complicated situation. At first glance, the Red Envelope seems creatively to clear up employee's equity puzzle by present each with a universal red colored packet. And some Chinese companies' corporation articles ensure this equity by prohibition of openly discussion of cash inside among employees. The data in table 4 also inform us 73% respondents uncover this superficial fairness and know others' Red Envelope. Their investigating action leads to the result that 33% respondents digging out others' Red Envelope is for fairness with 19% respondents for reference. Suppose the respondents look for reference is on the purpose of finding out the fairness of the Red Envelope. Then "for fairness" would be the first concern of the respondents, not curiosity. In that case, it would destroy the evident supporting hypothesis 3. Anyway, we would rather build the hypothesis 3 on the respondents' perception not our inference.


China, in some foreign people's eyes, is a mysterious oriental country with many strange or unfamiliar management practices related to its unique culture. This paper presents one Chinese-style management tool-the Red Envelope and offers useful empirical data and analysis concerned. Based on our study on 108 respondents' questionnaires, we found that:

Firstly, being one form of the year-end bonus, the Red Envelope is associated with recognition of the Chinese employee's work performance. To express in term of expectancy theory, this recognition is the one valence of the Red Envelope the Chinese employees attach to. The other valence of the Red Envelope is what employee could achieve by spending the cash inside.

Secondly, the value of the Red Envelope or how much cash contained in the sealed packet is directly related to the work performance the Chinese employee makes. The Chinese employee assumes high possibility that their hard work will lead to more cash in the packet. In addition, their own working experience teaches them they will definitely get more valuable Red Envelope should they perform better than that of last year. In other word, their past experience of receiving the Red Envelope reinforces their beliefs and acts as positive reinforcement. Accordingly, they would make more effort to do better job.

Thirdly, the Red Envelope is fair reward in some Chinese employees' view though others do not think so. The fairness or equity of the outcomes depends largely on employee's perception. Their perceptions vary with different financial or non-financial situation. In addition, certain disappointing points of the Red Envelope such as no transparency rules and sealed in packet obscure the Chinese employees' assessment of the fairness of the

Red Envelope. This conduct itself would provoke employees' suspicious of the fairness of the Red Envelope.

All in all, this empirical study reveals that the Red Envelope as a reward motivates the Chinese employee because it is a valuable valence with recognition function and the money value, and it send a highlight signal for the Chinese employee that it is positively related to

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their work performance with the past working experience as reinforce factor, and last it is perceived to be a fair reward. The Chinese management could take the Red Envelope as an incentive measure for Chinese employees based on our research. Those findings agree to previous workings of other researchers (Chiu et al. 2002; Groves et al. 1994; Jackson et al. 1998)


Nowadays discussion of and suggested solution to severe shortage of labor resources in some labor-intensive industry alone the coastal areas of China frequently shows up on the cover page of Chinese media. Each enterprise in China, no matter private, state or foreign, has to face the challenge sooner or later because the most comparative advantage production factor-labor cost has been beginning to fade away. To motivate employee, or to less extent, to retain the elite would be on the top agenda of the Chinese management. The critical point for the Chinese management is to be well prepared to take good care of those changing facts so as to motivate employee accordingly.

The conclusion that the Red Envelope as one form of year-end bonus is an incentive to the Chinese employee could be a useful tool to encourage better work performance of the Chinese employee based on our study. However, some matters should be noticed. The fairness of the Red Envelope is the one. To avoid the dilemma, the Chinese management could take measures to deal with disappointing parts of the Red Envelope, like making public the rules of rewarding and decease of the prohibition articles. Anything facilitate employee's assessment of the Red Envelope would be the destroyer to scatter employee's suspicions and would freshen this black box into dazzled kaleidoscope. The other noticeable thing is to update the fillings of the Red Envelope so as to meet employee's needs directly, but not with assistance of cash inside. Promotion and paid holiday, as mentioned early in the context could be good alternatives. Do not let down the Chinese employee! They are eager to bring their creative and productive human power into full play, with energy injection of a satisfying stimulator created by the thoughtful management.

Further Research

In this paper, we mainly study the incentive effect of the Red Envelope, one of the year-edn bonuses. No other year-end bonuses are discussed. Comparative study among these year-end bonuses is necessity since the study would offer guiding information to the management which one is more effective and economic.

In practice, how to pay the Red Envelope is a problem requiring more study because Sturman (2006) suggests how to pay has a great effect on employee's performance. Since the issuance of regulation on personal income tax in 1993, personal income tax deducts what employee receives in the end. It is the management duty to minimize this tax burden shifting to the Chinese employees and adjust certain policy to this situation. Some enterprises have already taken some measures, for instance, to pay the Red Envelope in three or more installments. That change, some people think, hurts employee's expectation and greatly decrease the linkage the reward and the work performance.

In addition, though all human beings have almost identical types of needs people experience these needs at different time and to different degrees. Further, cultures provide differing contexts for the satisfaction of these needs. China is in the state of fast development and everything is constantly changing. Thus, if employees in China are wealthy enough, would the motivation function of the Red Envelope remain or undertake some changes?


It would be tough work for the authors to make this paper published without the supports of many

persons. We owe our first thanks to our families. They encourage and support us to keep going. We would also express our gratitude to the owners of the investigated companies located in Henan who give us green light to conduct the research work, which is the foundation of this paper.

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