We examine a firm's choice of a measurement system designed to serve two distinct objectives; provide forward-looking information about future firm productivity and ex post information about past managerial performance. A firm can have two separate measurements, one for each purpose, or a single...

This paper studies the role of performance standards in executive annual bonus plans. We find that earned bonuses exceed pre-determined target bonuses (on average), implying that standards do not reflect performance expectations in a statistical sense. We also find that target bonuses are...

In dynamic principal-agent relationships, unless a principal can precommit to a multiperiod contract, incentives are affected by a problem known as the ratchet effect. We present a two period agency model to show that the use of more aggregate performance measures and greater consolidation of...

How managers and executives are evaluated and rewarded has become an increasingly contentious issue in recent years. The benefits and pitfalls of firms? compensation practices are routinely featured in the business press and have attracted considerable attention from governments, unions, as well...

We use a linear contracting framework to study how the relation between performance measures used in an agent's incentive contract and the agent's private pre-decision information affects the value of delegating decision rights to the agent. The analysis relies on the idea that available...