On the Use of Nonfinancial Performance Measures in Management Compensation
AbstractIt is often claimed that (i) managers work too hard on operational issues and do not spend enough effort on strategic activities, and (ii) something can be done about this by introducing nonfinancial performance measures, as for instance with a balanced scorecard. We give an explanation for both claims in a formal model. The distortion toward operational effort arises because with financial performance measures strategic effort can only be rewarded in the future. But renegotiation-proof long-term compensation plans entail too weak variable components in the future. This problem can be reduced by introducing performance measures that help to disentangle strategic and operational effects. Copyright (c) 2002 Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 11 (2002)
Issue (Month): 3 (09)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- Dirk Sliwka, 2001. "On the Use of Nonfinancial Performance Measures in Management Compensation," Bonn Econ Discussion Papers bgse29_2001, University of Bonn, Germany.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
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