Baker (2002) has demonstrated theoretically that the quality of performance measures used in compensation contracts … noise and distortion of a performance measure can be measured. Courty and Marschke (2007) have recently developed an elegant … empirical test to detect distortion, based on the degradation of a performance measure subsequent to increasing its weight in …

performance. Measured performance equals actual performance plus noise. We compare a stable environment where the noise is small … expectancy theory; noisier performance measures do not lower work motivation. …

When verifiable performance measures are imperfect, organizations often resort to subjective performance pay. This may … towards specific tasks. We show that subjective performance pay based on evaluation by a biased supervisor has the same … distorting effect on the agent's effort allocation as incentive pay based on an incongruent performance measure. If the principal …

Theoretical analyses of (optimal) performance measures are typically performed within the realm of the linear agency … noise in the performance measure. In contrast, expectancy theory as developed by psychologists predicts lower effort levels … for noisier performance measures. We conduct a real effort laboratory experiment and find that effort levels are invariant …

This paper analyzes empirically the relationship between pay and performance. Economic and psychological theories … predict that the design and implementation of a performance measurement and compensation system affect the motivation of …

affects the performance of firms that increase the power of the incentive schemes. In a laboratory experiment, we let subjects …