Performance-based pay is an important instrument to align the interests of managers with the interests of shareholders …. However, recent evidence suggests that high-powered incentives also provide managers with incentives to manipulate the firm …'s reported earnings. The previous literature has focused primarily on Chief Executive Officers, but managers further down in the …

behaviour on executive compensation conditioned on managerial ability. We find that managers with better abilities are … part of superior managers’ skills and should be incorporated in their reward contracts. The results show that managerial …