Author: George Baker
Publisher:
ISBN:
Category :
Languages : es
Pages : 37

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Book Description

Author: George Pierce Baker
Publisher:
ISBN:
Category :
Languages : en
Pages : 31

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Book Description
Incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined used of subjective and objective performance measures in implicit and explicit incentive contracts. It shows that the presence of sufficiently effective explicit contracts can render all implicit contracts infeasible, even those that would otherwise yield the first-best. It also shows, however, that in some circumstances objective and subjective measures are complements: neither an explicit nor an implicit contract alone yields positive profit, but an appropriate combination of the two does. Finally, subjective weights on objective measures are considered.

Author: George P. Baker
Publisher:
ISBN:
Category :
Languages : en
Pages : 39

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Book Description
Objective measures of performance are seldom perfect. In response, incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures in (respectively) implicit and explicit incentive contracts. Naturally, objective and subjective measures often are substitutes, sometimes strikingly so: we show that if objective measures are sufficiently close to perfect then no implicit contracts are feasible (because the firm's fallback position after reneging on an implicit contact is too attractive). We also show, however, that objective and subjective measures can reinforce each other: if objective measures become more accurate then in some circumstances the optimal contract puts more weight on subjective measures (because the improved objective measures increase the value of the ongoing relationship, and so reduce the firm's incentive to renege). We also analyze the use of subjective weights on objective performance measures, and provide case-study evidence consistent with our analyses.

Author: Merle Ederhof
Publisher: Now Publishers Inc
ISBN: 1601984545
Category : Business & Economics
Languages : en
Pages : 86

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Book Description
Discretion in Managerial Bonus Pools synthesizes and integrates a growing literature that has emerged over the past 10-15 years on the use of both objective and subjective performance indicators in managerial incentive plans. The authors examine the structure of efficient bonus pools (fixed payment schemes) in the presence of subjective performance indicators. The analysis covers a range of scenarios including single- and multi-agent settings, the interplay of objective and subjective indicators and short-term as opposed to long-term contracting relations. To synthesize the existing research, the authors frame their exposition around five recurring themes which collectively speak to the structure and the efficiency of incentive schemes based on subjective information i. Value of Subjective Performance Indicators. ii. Incremental Agency Cost. iii.Compression of Optimal Incentive Contracts. iv. Optimality of Proper Bonus Pools. v. Value of Multiperiod Contracting

Author: Michael Raith
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
In many occupations, the consequences of agents' actions become known only over time. Firms can then pay agents based on early but noisy performance measures, or later but more accurate ones. I study this choice within a two-period model in which an agent's action generates an output with delay, and a noisy signal of output early. While the signal is useful for early consumption decisions, it is not clear that the signal is useful for incentive contracting if the agent has access to credit. I show, however, that under very general conditions the optimal contract depends on the early signal as well as on output even if the signal is uninformative of effort, given output, and even if the agent has perfect access to credit. An important characteristic of any performance measure, therefore, is the time at which it is generated. The results shed light on the use of forward-looking performance measures such as stock returns in managerial incentive contracts.

Author: W. Bentley MacLeod
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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This paper extends the standard principal-agent model to allow for subjective evaluation. It is shown that the optimal contract entails the use of more compressed evaluations relative to the case with objective performance measures. The degree of compression increases as the correlation between the principal's and agent's beliefs decreases. It is possible for the agent to implement a contract with high power incentives, however this necessarily entails a high level of "conflict" in the relationship, with the optimal amount of compression resulting from trading off between performance incentives and the socially wasteful "conflict" that they create. The model is also used to show how a bias or discrimination against an individual can lead to lower wages and performance.

Author: Sara Bormann
Publisher:
ISBN:
Category :
Languages : en
Pages : 51

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Book Description
This paper examines a potential problem associated with the use of subjectivity in incentive contracts: Relational contracting clarity. Clarity refers to the extent to which the terms of a relational contract, or subjective assessment can be communicated and an employee and his superior are able to build a shared understanding on which behavior is desirable and how it translates into rewards (Gibbons and Henderson 2012a, 2012b). If the terms of a subjective assessment are difficult to communicate, contracting clarity and hence the incentive effect of subjectivity diminish. Accordingly, firms should reduce their reliance on subjectivity. It has been argued that this is the case in complex and multidimensional settings, which arise, for instance, when firms pursue a joint strategy (i.e. follow a differentiation and a low- cost strategy simultaneously). Following a joint strategy has been associated with increased complexity and multidimensionality in the decision making process due to potentially conflicting strategic goals (Dekker et al. 2013; Lillis 2002; Lillis and van Veen-Dirks 2008). My results based on the analysis of survey data of 153 firms are consistent with my expectations. That is, pursuing a joint strategy is associated with a reduced use of subjectivity. However, this relation is not prevalent for all forms of subjectivity. In particular, following a joint strategy is associated with a reduced reliance on subjective formulas, while there is no relation to the use of subjective performance measures.

Author: Marc J. Epstein
Publisher: Emerald Group Publishing
ISBN: 1849505713
Category : Business & Economics
Languages : en
Pages : 371

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Book Description
Presents a collection of research in management control and performance measurement. This book offers guidance for both academic researchers and managers as they work toward improving organizations.

Author: Veikko Thiele
Publisher: VDM Publishing
ISBN: 9783836422253
Category : Business & Economics
Languages : en
Pages : 132

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Book Description
Employees are generally charged with performing a collection of various tasks that contribute to firm value differently. The accountability for multiple tasks implies that employees can not only decide on their effort intensity, but also on how to allocate their effort across these tasks. To motivate employees, firms often utilize incentive contracts on the basis of objective performance measures. However, if individual performance evaluations do not accurately reflect employees' contributions to firm value, the application of such incongruent performance measures induces employees to place more emphasis on less valuable tasks relative to those with greater contributions to firm value. The author, Veikko Thiele, investigates and explicates the optimal design of incentive contracts in situations where employees are charged with multiple tasks (multitasking). He identifies and explores potential mechanisms aimed at motivating employees to implement more efficient effort allocations from a firm's perspective. This book specifically targets economists, executives, consultants, and companies.

Author: Antonio Davila
Publisher: Emerald Group Publishing
ISBN: 1780529104
Category : Business & Economics
Languages : en
Pages : 504

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Book Description
In addition to the three plenary sessions, this volume contains some of the exemplary papers that were presented at the 2011 conference; representing a collection of leading research in management control and performance measurement and providing a significant contribution to the growing literature in the area.