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 |
References listed on IDEAS
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.:
- 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 225-64, April.
- 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.
- 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, 03.
- Bengt Holmstrom, 1979.
"Design of Incentive Schemes and the New Soviet Incentive Model,"
456, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Holmstrom, Bengt, 1982. "Design of incentive schemes and the new Soviet Incentive model," European Economic Review, Elsevier, vol. 17(2), pages 127-148.
- 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 373-95, Fall.
- 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.
- 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.
- 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.
- repec:cup:cbooks:9780521358668 is not listed on IDEAS
- 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.
- Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
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.
If references are entirely missing, you can add them using this form.