Effort and Selection Effects of Incentive Contracts

J.F.M.G. Bouwens, L.A.G.M. van Lent

Research output: Working paperDiscussion paperOther research output

389 Downloads (Pure)

Abstract

We show that the improved effort of employees associated with incentive contracts depends on the properties of the performance measures used in the contract.We also find that the power of incentives in the contract is only indirectly related to any improved employee effort.High powered incentive increase the selection effect of the incentive contract and attract better employees to the firm.The selection effect of the incentive contract depends, in turn, on the (perceived) properties of the performance measures specified in the contract.These results hold after controlling for an array of incentive contract design characteristics and for differences in organizational context.Data is from a third party survey on compensation practices among Chief Executive Officers.Our estimation procedures address several known problems with using secondary datasets.
Original languageEnglish
Place of PublicationTilburg
PublisherAccounting
Number of pages31
Volume2003-130
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-130

Fingerprint

Incentive contracts
Selection effects
Employees
Performance measures
Incentives
Contract design
Chief executive officer
Organizational context

Keywords

  • incentives
  • contracts
  • performance measurement
  • employees

Cite this

Bouwens, J. F. M. G., & van Lent, L. A. G. M. (2003). Effort and Selection Effects of Incentive Contracts. (CentER Discussion Paper; Vol. 2003-130). Tilburg: Accounting.
Bouwens, J.F.M.G. ; van Lent, L.A.G.M. / Effort and Selection Effects of Incentive Contracts. Tilburg : Accounting, 2003. (CentER Discussion Paper).
@techreport{46a62de7d051462093bb3805ec8e5618,
title = "Effort and Selection Effects of Incentive Contracts",
abstract = "We show that the improved effort of employees associated with incentive contracts depends on the properties of the performance measures used in the contract.We also find that the power of incentives in the contract is only indirectly related to any improved employee effort.High powered incentive increase the selection effect of the incentive contract and attract better employees to the firm.The selection effect of the incentive contract depends, in turn, on the (perceived) properties of the performance measures specified in the contract.These results hold after controlling for an array of incentive contract design characteristics and for differences in organizational context.Data is from a third party survey on compensation practices among Chief Executive Officers.Our estimation procedures address several known problems with using secondary datasets.",
keywords = "incentives, contracts, performance measurement, employees",
author = "J.F.M.G. Bouwens and {van Lent}, L.A.G.M.",
note = "Pagination: 31",
year = "2003",
language = "English",
volume = "2003-130",
series = "CentER Discussion Paper",
publisher = "Accounting",
type = "WorkingPaper",
institution = "Accounting",

}

Bouwens, JFMG & van Lent, LAGM 2003 'Effort and Selection Effects of Incentive Contracts' CentER Discussion Paper, vol. 2003-130, Accounting, Tilburg.

Effort and Selection Effects of Incentive Contracts. / Bouwens, J.F.M.G.; van Lent, L.A.G.M.

Tilburg : Accounting, 2003. (CentER Discussion Paper; Vol. 2003-130).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Effort and Selection Effects of Incentive Contracts

AU - Bouwens, J.F.M.G.

AU - van Lent, L.A.G.M.

N1 - Pagination: 31

PY - 2003

Y1 - 2003

N2 - We show that the improved effort of employees associated with incentive contracts depends on the properties of the performance measures used in the contract.We also find that the power of incentives in the contract is only indirectly related to any improved employee effort.High powered incentive increase the selection effect of the incentive contract and attract better employees to the firm.The selection effect of the incentive contract depends, in turn, on the (perceived) properties of the performance measures specified in the contract.These results hold after controlling for an array of incentive contract design characteristics and for differences in organizational context.Data is from a third party survey on compensation practices among Chief Executive Officers.Our estimation procedures address several known problems with using secondary datasets.

AB - We show that the improved effort of employees associated with incentive contracts depends on the properties of the performance measures used in the contract.We also find that the power of incentives in the contract is only indirectly related to any improved employee effort.High powered incentive increase the selection effect of the incentive contract and attract better employees to the firm.The selection effect of the incentive contract depends, in turn, on the (perceived) properties of the performance measures specified in the contract.These results hold after controlling for an array of incentive contract design characteristics and for differences in organizational context.Data is from a third party survey on compensation practices among Chief Executive Officers.Our estimation procedures address several known problems with using secondary datasets.

KW - incentives

KW - contracts

KW - performance measurement

KW - employees

M3 - Discussion paper

VL - 2003-130

T3 - CentER Discussion Paper

BT - Effort and Selection Effects of Incentive Contracts

PB - Accounting

CY - Tilburg

ER -

Bouwens JFMG, van Lent LAGM. Effort and Selection Effects of Incentive Contracts. Tilburg: Accounting. 2003. (CentER Discussion Paper).