Download or read book Optimal Performance and Incentive Contracts in a Multidivisional Firm written by Zenat Mohamed Moharam and published by . This book was released on 1983 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Subjective Performance Measures in Optimal Incentive Contracts written by George P. Baker and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Objective measures of performance are seldom perfect. In response, incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures in (respectively) implicit and explicit incentive contracts. Naturally, objective and subjective measures often are substitutes, sometimes strikingly so: we show that if objective measures are sufficiently close to perfect then no implicit contracts are feasible (because the firm's fallback position after reneging on an implicit contact is too attractive). We also show, however, that objective and subjective measures can reinforce each other: if objective measures become more accurate then in some circumstances the optimal contract puts more weight on subjective measures (because the improved objective measures increase the value of the ongoing relationship, and so reduce the firm's incentive to renege). We also analyze the use of subjective weights on objective performance measures, and provide case-study evidence consistent with our analyses.

Download or read book Optimal Information Design and Incentive Contracts with Performance Measure Manipulation written by Robert F. Göx and published by . This book was released on 2019 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how a firm owner motivates a manager to create value by optimally designing an information system and a compensation contract based on a manipulable performance measure. In equilibrium, the firm either implements a perfect or an uninformative system. The information system and the pay-performance sensitivity (PPS) of the compensation contract can be substitutes in a sense that the firm optimally combines a perfect information system with a low PPS or an uninformative system with a high PPS. Because the information design is endogenous, firms facing relatively high manipulation threat may offer financial incentives that are higher-powered than the ones offered by their peers facing lower manipulation threat. If the manager is in charge of implementing the information system, he chooses a perfect one unless the firm uses the information for internal control. The firm may prefer to commit to an internal control level before observing any information.

Download or read book Optimal Incentive Contracts in the Presence of Career Concerns written by Robert Gibbons and published by . This book was released on 1991 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies career concerns -- concerns about the effects of current performance on future compensation -- and describes how optimal incentive contracts are affected when career concerns are taken into account. Career concerns arise frequently: they occur whenever the market uses a worker's current output to update its belief about the worker's ability and competition then forces future wages (or wage contracts) to reflect these updated beliefs. Career concerns are stronger when a worker is further from retirement, because a longer prospective career increases the return to changing the market's belief. In the presence of career concerns, the optimal compensation contract optimizes total incentives -- the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract. Thus, the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement. We find empirical support for this prediction in the relation between chief-executive compensation and stock-market performance.

Download or read book Subjective performance measures in optimal incentive contracts written by George Baker and published by . This book was released on 1993 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Multitasking and Incentive Contracts written by Veikko Thiele and published by VDM Publishing. This book was released on 2007 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: Employees are generally charged with performing a collection of various tasks that contribute to firm value differently. The accountability for multiple tasks implies that employees can not only decide on their effort intensity, but also on how to allocate their effort across these tasks. To motivate employees, firms often utilize incentive contracts on the basis of objective performance measures. However, if individual performance evaluations do not accurately reflect employees' contributions to firm value, the application of such incongruent performance measures induces employees to place more emphasis on less valuable tasks relative to those with greater contributions to firm value. The author, Veikko Thiele, investigates and explicates the optimal design of incentive contracts in situations where employees are charged with multiple tasks (multitasking). He identifies and explores potential mechanisms aimed at motivating employees to implement more efficient effort allocations from a firm's perspective. This book specifically targets economists, executives, consultants, and companies.

Download or read book Optimal Incentive Contracting written by Joseph L. Midler and published by . This book was released on 1970 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several versions of the negotiation of the parameters of incentive contracts between a government and private contractors are formulated as game theoretical models. This framework permits one focus upon a number of aspects that have previously been overlooked such as the interaction of the participants, the lack of domination by one side or the other, constraints upon the player's strategies, and the possible joint interests of the one party in the other player's outcome. Computational methods of solution are suggested. (Author).

Download or read book Multi Task Principal agent Analyses written by Bengt Holmstrom and published by . This book was released on 1990 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Incentive Contracts with Multiple Agents written by Joel S. Demski and published by . This book was released on 1983 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Subjective Performance Measures in Optimal Incentive Contracts written by George Pierce Baker and published by . This book was released on 1994 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined used of subjective and objective performance measures in implicit and explicit incentive contracts. It shows that the presence of sufficiently effective explicit contracts can render all implicit contracts infeasible, even those that would otherwise yield the first-best. It also shows, however, that in some circumstances objective and subjective measures are complements: neither an explicit nor an implicit contract alone yields positive profit, but an appropriate combination of the two does. Finally, subjective weights on objective measures are considered.

Download or read book Use of Incentives in Performance Based Logistics Contracting written by Gregory Sanders and published by Rowman & Littlefield. This book was released on 2018-04-19 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional contracting is primarily transactional, rewarding contractors when deliveries are made or certain process milestones are met. Performance-Based Logistic (PBL) contracting seeks to base contractor incentives on ongoing performance measures to achieve reliability and cost savings. Key to the success of these arrangements are the incentives that align the interests of the customer and the vendor. This report describes the incentives used in PBL contracts, identifies best practices, and provides recommendations for effective incentives going forward. The study team interviewed PBL practitioners including defense-unique contractors, defense-commercial contractors, and experts who are knowledgeable in the government perspective in the United States and abroad. The team supplemented these interviews by analyzing a PBL dataset of U.S. Department of Defense contracts. Of the four identified categories of incentives—time-based, financial, scope, and other—interviews found that time-based incentives stood out for their reliable appeal and relative underuse in the United States.

Download or read book Optimal Incentive Contracts in Project Management written by Milind Dawande and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated by the ever-growing complexity of projects and the consistent trend of outsourcing of individual tasks or components, we study the contract-design problem faced by a firm (or organization) for executing a project consisting of multiple tasks, each of which is performed by an individual contractor whose efforts (work-rates) are not observable. While the contractors incur costs continuously during the course of their tasks, the firm realizes its reward or revenue only when the entire project is (i.e., all tasks are) completed. The firm's contract-design decisions and the contractors' effort-level decisions are all governed by the goals of maximizing the respective party's expected discounted profit. We adopt the framework in Kwon et al. (2010a) and Chen et al. (2015), and derive optimal contracts for both parallel projects (tasks can be performed in parallel) and sequential projects (tasks have to be performed sequentially). The simplicity of the contracts we obtain suggests that there is potential for designing profit-maximizing contracts without paying a price in terms of contract complexity.

Download or read book Marketable Incentive Contracts and Endogenous Management Objectives written by Gerald T. Garvey and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Most of the agency and signalling models in corporate finance rely on management objective functions that have some exogenous distortion. An important paper by Dybvig and Zender (1991) shows how firms' financial policies and capital structures are often irrelevant when management incentive contracts are optimally chosen. This paper analyzes a model where risk-neutral investors choose an optimal contract for the firm's risk-averse manager before committing their funds and before there is any informational asymmetry. The manager is then allowed to trade her claim on the firm on a competitive market with risk-neutral participants who know exactly when the manager is trading and correctly infer the effect the trade will have on the manager's future actions. Despite this lack of quot;noise tradersquot;, the manager will choose to fully unwind her position in the firm. Her subsequent actions will therefore be entirely determined by her private taste for leisure or her career concerns. This result justifies the use of capital structure and budgeting as costly tools to affect the firm's real decisions, as well as the use of unverifiable performance information in management incentive contracts.

Download or read book Optimal Contracting with Moral Hazard and Cascading written by Naveen Khanna and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper I identify optimal incentive contracts for managers of firms competing in the product market. Such firms often confront similar decisions and uncertainties. Managers can improve decision quality by generating private signals through costly effort. However, since signals are likely to be correlated, firms that decide later get additional information from the actions of earlier firms. This impacts effort choice. Decision quality is also affected if later managers disregard their own signals and blindly imitate preceding decisions. In a competitive environment, such cascading hurts profits. Contracts that solve both moral hazard and cascading problems typically put more weight on firm profits, making them expensive. Contracts with more weight on decision quality are less expensive but result in cascades. Shareholders choose contracts that maximize their net surplus. This results in testable implications about which industries may have more convergence in investment choices, greater pay-for-profit sensitivity, larger differences in observed contracts, more innovation, larger-sized firms, and potential for over-compensation.

Download or read book Uncertainty Contracting and Beliefs in Organizations written by David L. Dicks and published by . This book was released on 2021 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine a multidivisional firm with headquarters exposed to moral hazard by division managers under uncertainty. We show the aggregation and linearity properties of Holmström and Milgrom (1987) hold under IID ambiguity of Chen and Epstein (2002). Due to uncertainty aversion, agents' beliefs depend endogenously on their exposure to uncertainty, either for their position in the organization (hierarchical exposure) or contracts (contractual exposure). Incentive contracts, by loading primarily on division cash-flow, lead division managers to be more conservative than headquarters, aggravating moral-hazard. By hedging uncertainty, headquarters design contracts that reduce disagreement, lower incentive provision costs, promoting effort. Because hedging uncertainty interacts with hedging risk, optimal contracts differ from those in standard principal-agent models. Our model helps explain the prevalence of equity-based incentive contracts and the rarity of relative-performance compensation.

Download or read book How Incentive Contracts and Task Complexity Influence and Facilitate Long term Performance written by Leslie Berger and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Incentives and the Time Dimension of Performance Measurement written by Michael Raith and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In many occupations, the consequences of agents' actions become known only over time. Firms can then pay agents based on early but noisy performance measures, or later but more accurate ones. I study this choice within a two-period model in which an agent's action generates an output with delay, and a noisy signal of output early. While the signal is useful for early consumption decisions, it is not clear that the signal is useful for incentive contracting if the agent has access to credit. I show, however, that under very general conditions the optimal contract depends on the early signal as well as on output even if the signal is uninformative of effort, given output, and even if the agent has perfect access to credit. An important characteristic of any performance measure, therefore, is the time at which it is generated. The results shed light on the use of forward-looking performance measures such as stock returns in managerial incentive contracts.