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Performance Measurement and Incentive Plans

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  • Kauhanen, Antti
  • Napari, Sami

Abstract

This paper explores performance measurement in incentive plans. Based on theory, we argue that differences in the nature of jobs between blue- and white-collar employees lead to differences in incentive systems. We find that performance measurement for white-collar workers is broader in terms of the performance measures, the organizational level of performance measurement and the time horizon. The intensity of incentives is also stronger for white-collar employees. All of these findings are consistent with theory.

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Bibliographic Info

Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1216.

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Length: 28 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:rif:dpaper:1216

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Keywords: incentive pay; performance measurement; risk versus distortion trade-off; agency theory;

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References

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  1. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
  2. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  3. Raith, Michael, 2004. "Specific Knowledge and Performance Measurement," CEPR Discussion Papers 4262, C.E.P.R. Discussion Papers.
  4. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
  5. Fama, Eugene F, 1991. "Time, Salary, and Incentive Payoffs in Labor Contracts," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 25-44, January.
  6. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  7. Murphy, Kevin J., 2000. "Performance standards in incentive contracts," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 245-278, December.
  8. Asplund, Rita, 2007. "Finland: Decentralisation Tendencies within a Collective Wage Bargaining System," Discussion Papers 1077, The Research Institute of the Finnish Economy.
  9. Gibbs, Michael & Merchant, Kenneth A. & Van der Stede, Wim A. & Vargus, Mark A., 2004. "Performance Measure Properties and Incentives," IZA Discussion Papers 1356, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Kauhanen, Antti & Salmi, Julia & Torkki, Paulus, 2013. "Performance Measurement in Healthcare Incentive Plans," ETLA Working Papers 18, The Research Institute of the Finnish Economy.
  2. Kato, Takao & Kauhanen, Antti & Kujansuu, Essi, 2013. "The Performance Effects of Individual and Group Incentives: A Case Study," ETLA Working Papers 19, The Research Institute of the Finnish Economy.
  3. Kato, Takao & Kauhanen, Antti, 2013. "Performance Pay and Enterprise Productivity: The Details Matter," ETLA Working Papers 21, The Research Institute of the Finnish Economy.
  4. Kato, Takao & Kauhanen, Antti & Salmi, Julia, 2013. "Empirical Evidence on the Dynamics of Incentive Plans," ETLA Working Papers 20, The Research Institute of the Finnish Economy.

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