Performance Measure Properties and the Effect of Incentive Contracts
Performance Measure Properties and the Effect of Incentive Contracts

Author: Jan Bouwens

Publisher:

Published: 2006

Total Pages:

ISBN-13:

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Using data from a third-party survey on compensation practices at 151 Dutch firms, we show that less noisy or distorted performance measures and higher cash bonuses are associated with better-directed effort and improved employee selection. Specifically, 1) an increase in the cash bonus increases the selection effects of incentive contracts, but does not independently affect the effort that employees deliver, and 2) performance measure properties directly impact both effort and the selection functioning of incentive contracts. These results hold after controlling for an array of incentive contract design characteristics and for differences in organizational context. Our estimation procedures address several known problems with using secondary datasets.

Performance Measure Properties and Incentive System Design
Performance Measure Properties and Incentive System Design

Author: Michael Gibbs

Publisher:

Published: 2009

Total Pages: 0

ISBN-13:

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We analyze effects of performance measure properties (controllable and uncontrollable risk, distortion, and manipulation) on incentive plan design, using data from auto dealership manager incentive systems. Dealerships put the most weight on measures that are "better" with respect to these properties. Additional measures are more likely to be used for a second or third bonus if they can mitigate distortion or manipulation in the first performance measure. Implicit incentives are used to provide ex post evaluation, to motivate the employee to use controllable risk on behalf of the firm, and to deter manipulation of performance measures. Overall, our results indicate that firms use incentive systems of multiple performance measures, incentive instruments, and implicit evaluation and rewards as a response to weaknesses in available performance measures.

Optimal Incentives and the Time Dimension of Performance Measurement
Optimal Incentives and the Time Dimension of Performance Measurement

Author: Michael Raith

Publisher:

Published: 2009

Total Pages: 0

ISBN-13:

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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.

The Effect of Incentive Contracts on Learning and Performance
The Effect of Incentive Contracts on Learning and Performance

Author: Geoffrey B. Sprinkle

Publisher:

Published: 2014

Total Pages:

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This paper reports the results of an experiment that examines how incentive-based compensation contracts compare to flat-wage compensation contracts in motivating individual learning and performance. I use a multiperiod cognitive task where the accounting system generates information (feedback) that has both a contracting role and a belief-revision role. The results suggest that incentives enhance performance and the rate of improvement in performance by increasing both: (1) the amount of time participants devoted to the task, and (2) participants' analysis and use of information. Further, I find evidence that incentives improve performance only after considerable feedback and experience, which may help explain why many prior one-shot decision-making experiments show no incentive effects. Collectively, the results suggest that incentives induce individuals to work longer and smarter, thereby increasing the likelihood that they will develop and use the innovative strategies frequently required to perform well in complex judgment tasks and learning situations.

Distorted Performance Measures and Dynamic Incentives
Distorted Performance Measures and Dynamic Incentives

Author: Oddvar Kaarboe

Publisher:

Published: 2008

Total Pages: 0

ISBN-13:

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Incentive contracts must typically be based on performance measures that do not exactly match the agents' true contribution to the principals' objectives. Such misalignment may pose difficulties for effective incentive design. We analyze the extent to which implicit dynamic incentives, such as career concerns and ratchet effects, alleviate or aggravate these problems. Our analysis demonstrates that the interplay between distorted performance measures and implicit incentives implies that career and ratchet effects have real effects in that stronger ratchet effects or greater distortion may increase optimal monetary incentives, and that distortion affects the optimality of different promotion rules.

Effects of Incentive Contracts in Research and Development
Effects of Incentive Contracts in Research and Development

Author: Edward B. Roberts

Publisher: Forgotten Books

Published: 2018-02-23

Total Pages: 48

ISBN-13: 9780666180346

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Excerpt from Effects of Incentive Contracts in Research and Development: A Preliminary Research Report In the past several years an effort has originated in the Defense Department (and followed by other government agencies) to discourage the use of cost-p1us=fixed fee (cpff) contracts and substitute contractual incentive arrangements. This effort supposedly relies upon the profit motive to reduce requirements for direct government control and to stim ulate better contractor performance and cost estimating. Incentive type contracts are not new in government contracting. Production contracts have been awarded on a fixed price basis for many years. The fixed price contract provides maximum correlation of contract profits with contract cost, and in theory might offer maximum cost incentive. How ever the use of incentive arrangements on r&d contracts is the novel feature of the dod (and nasa) programs of the past several years. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.