published in: Industrial Relations, 2009, 48(2), 237-264
We examine the effects of performance measure properties on incentive system design,
using data on incentive contracts for auto dealership managers. The data include information
on five properties: two indicators of risk; two indicators of distortion; and one indicator of
potential manipulation. We find that these properties have important effects on incentive
system design. First, firms appear to choose the “best” performance measure available along
these dimensions, and use it for the most important (primary) formula bonus. Second, the
properties of this primary performance measure are important determinants of the weight
placed on the measure for explicit. Third, firms appear to use other performance measures to
balance multitask incentives relative to the primary performance measure. Specifically, we
find evidence that second and third bonuses are used to provide better incentives for
cooperation and to reduce incentives for manipulation. Fourth, we present evidence that
subjectivity, through discretionary bonuses based on subjective performance evaluations,
and also through implicit incentives for promotions and other rewards, also appear to play the
same roles.
We use cookies to provide you with an optimal website experience. This includes cookies that are necessary for the operation of the site as well as cookies that are only used for anonymous statistical purposes, for comfort settings or to display personalized content. You can decide for yourself which categories you want to allow. Please note that based on your settings, you may not be able to use all of the site's functions.
Cookie settings
These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.
In order to further improve our offer and our website, we collect anonymous data for statistics and analyses. With the help of these cookies we can, for example, determine the number of visitors and the effect of certain pages on our website and optimize our content.