This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of performance measures as well as on a firm's profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show that the principal...

We study a principal-agent model in which the agent can provide ex post additional relevant information regarding his performance. In particular, he can provide a legitimate excuse, that is, evidence that a poor result is only due to factors outside his control. However, building a convincing...

Incentives often fail in inducing economic agents to engage in a desirable activity; implementability is restricted. What restricts implementability? When does re-organization help to overcome this restriction? This paper shows that any restriction of implementability is caused by an identifi...

This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to...

When designing incentives for a manager, the trade-off between insurance and a "good" allocation of effort across various tasks is often identified with a trade-off between the responsiveness (sensitivity, precision, signal-noise ratio) of the performance measure and its similarity (congruity,...

When designing incentives for a manager, the trade-off between insurance and a "good" allocation of effort across various tasks is often identified with a trade-off between the responsiveness (sensitivity, precision, signal-noise ratio) of the performance measure and its similarity (congruity,...

Baker (2002) has demonstrated theoretically that the quality of performance measures used in compensation contracts hinges on two characteristics: noise and distortion. These criteria, though, will only be useful in practice as long as the noise and distortion of a performance measure can be...

This paper determines the cost of employee stock options (ESOs) to shareholders. I present a pricing method that seeks to replicate the empirics of exercise and cancellation as good as possible. In a first step, an intensity-based pricing model of El Karoui and Martellini is adapted to the needs...