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Performance measure properties and incentive system design

Gibbs, Michael J, Merchant, Kenneth A, Van der Stede, Wim and Vargus, Mark E (2009) Performance measure properties and incentive system design. Industrial Relations: a Journal of Economy and Society, 48 (2). pp. 237-264. ISSN 1468-232X

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Abstract

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.

Item Type: Article
Official URL: http://www.wiley.com/bw/journal.asp?ref=0019-8676
Additional Information: © 2009 The Regents of the University of California
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Sets: Departments > Accounting
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 19 Mar 2009 11:34
URL: http://eprints.lse.ac.uk/23399/

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