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...