Incentive schemes for executive officers when forecasts matter
This paper develops a new perspective on results-based incentive schemes for non-CEO managers. It shows that it is possible to establish incentive schemes that take into account both the actual output obtained and the forecast figure previously established as a target, without the negative consequences derived from the perverse loop of hiding-ratchet effects. A general linear two-staged scheme is proposed. In addition, relevant properties of this incentive system are stated that show how principals (corporate management) may determine the expected forecasting behavior of agents (executive officers) by suitably choosing the scheme parameters according to a simple set of rules. Copyright © 2009 John Wiley & Sons, Ltd.
Volume (Year): 31 (2010)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David de Meza & David C. Webb, 2007.
"Incentive Design under Loss Aversion,"
Journal of the European Economic Association,
MIT Press, vol. 5(1), pages 66-92, March.
- de Meza, David & Webb, David C., 2006. "Incentive design under loss aversion," LSE Research Online Documents on Economics 24523, London School of Economics and Political Science, LSE Library.
- David De Meza & David C Webb, 2006. "Incentive Design under Loss Aversion," FMG Discussion Papers dp571, Financial Markets Group.
- John, George & Weiss, Allen M & Weitz, Barton, 1987. "An Organizational Coordination Model of Salesforce Compensation Plans: Theoretical Analysis and Empirical Test," Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(2), pages 373-395, Fall.
- Holmstrom, Bengt, 1982.
"Design of incentive schemes and the new Soviet Incentive model,"
European Economic Review,
Elsevier, vol. 17(2), pages 127-148.
- Bengt Holmstrom, 1979. "Design of Incentive Schemes and the New Soviet Incentive Model," Discussion Papers 456, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Aron, Debra J & Olivella, Pau, 1994. "Bonus and Penalty Schemes as Equilibrium Incentive Devices, with Application to Manufacturing Systems," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 1-34, April.
- Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
- Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
- Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
- Mishra, Chandra S. & McConaughy, Daniel L. & Gobeli, David H., 2000. "Effectiveness of CEO pay-for-performance," Review of Financial Economics, Elsevier, vol. 9(1), pages 1-13.
- Ellman,Michael, 2014. "Socialist Planning," Cambridge Books, Cambridge University Press, number 9781107074736, May.
- Ruth Bender & Lance Moir, 2006. "Does â€˜Best Practiceâ€™ in Setting Executive Pay in the UK Encourage â€˜Goodâ€™ Behaviour?," Journal of Business Ethics, Springer, vol. 67(1), pages 75-91, August.
- Coughlan, Anne T & Narasimhan, Chakravarthi, 1992. "An Empirical Analysis of Sales-Force Compensation Plans," The Journal of Business, University of Chicago Press, vol. 65(1), pages 93-121, January.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:31:y:2010:i:5:p:339-352. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.