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 survey data to estimate the effect of the 2008–2009 recession on three fundamental bonus plan choices. We find robust evidence that the recession (i) reduced incentive strength, (ii) increased the relative incentive weight on financial performance measures, and (iii) increased the...

We consider a principal-multi agent model that features a three-tier hierarchy, defined as a setting where the principal contracts with an agent-manager and delegates to the manager some authority to contract with other agents. A key highlight is that incentive compensation, performance...

Empirical evidence suggests that information leakage in capital markets is common. We present a trading model to study the incentives of an informed trader (e.g., a well informed insider) to voluntarily leak information about an asset's value to one or more independent traders. Our model shows...

We find that firms are less likely to report an internal control material weakness (as mandated by the Sarbanes-Oxley Act) in a given year if one of their audit committee members is concurrently on the board of a firm that disclosed a material weakness within the prior three years. We find a...

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...

We study three elements of management control: incentive compensation, performance monitoring, and delegation of authority to managers to contract with lower-level employees. Using a principal-agent model, we highlight important direct and indirect interactions between and among these endogenous...