Arbeitspapier
The Degradation of Distorted Performance Measures
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 measured. Courty and Marschke (2007) have recently developed an elegant empirical test to detect distortion, based on the degradation of a performance measure subsequent to increasing its weight in the remuneration contract. We apply their test to assess the distortion of the often used class of performance measures that are based on ‘Residual Income’ (RI), such as ‘Economic Value Added’ (EVA). Residual income is widely used to measure and reward the performance of management boards. We use a difference-in-difference approach to account for (a) changes in economic circumstances in the period studied and (b) the self-selection of firms into the treatment and the control groups. Our results show that RI has degraded and is, therefore, a distortionary performance measure that can be gamed.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 08-072/3
- Klassifikation
-
Wirtschaft
Firm Behavior: Theory
Payout Policy
Compensation Packages; Payment Methods
Business Objectives of the Firm
Personnel Management; Executives; Executive Compensation
Accounting
Personnel Economics: Compensation and Compensation Methods and Their Effects
- Thema
-
Residual income
EVA
degradation
distortion
performance measurement
management compensation
incentive compensation
Leistungsbeurteilung
Führungskräfte
Performance-Messung
Leistungsentgelt
Anreizvertrag
USA
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Sloof, Randolph
van Praag, Mirjam
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2008
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Sloof, Randolph
- van Praag, Mirjam
- Tinbergen Institute
Entstanden
- 2008
Ähnliche Objekte (12)
Banking Unions: Distorted Incentives and Efficient Bank Resolution
Congestion Pricing in Urban Polycentric Networks with Distorted Labor Markets: A Spatial General Equilibrium Model for the Area Randstad
Testing for Distortions in Performance Measures: An Application to Residual Income Based Measures like Economic Value Added
Measures of Fit for Multinomial Discrete Models
Measures of Contributions to Price Discovery: A Comparison
Complexity, Robustness, and Performance
Tracing the Changing Measures of Unemployment in Dutch Unemployment Statistics 1900-1940
Growth Empirics with Institutional Measures and its Application to Transition Countries: A Survey
Predictive Performance of the Binary Logit Model in Unbalanced Samples
What determines Enterprise Performance in Russia? A Survey of the Evidence
The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures
Insurance, Entrepreneurial Start-Up, and Performance
Banking Unions: Distorted Incentives and Efficient Bank Resolution
Congestion Pricing in Urban Polycentric Networks with Distorted Labor Markets: A Spatial General Equilibrium Model for the Area Randstad
Testing for Distortions in Performance Measures: An Application to Residual Income Based Measures like Economic Value Added
Measures of Fit for Multinomial Discrete Models
Measures of Contributions to Price Discovery: A Comparison
Complexity, Robustness, and Performance
Tracing the Changing Measures of Unemployment in Dutch Unemployment Statistics 1900-1940
Growth Empirics with Institutional Measures and its Application to Transition Countries: A Survey
Predictive Performance of the Binary Logit Model in Unbalanced Samples
What determines Enterprise Performance in Russia? A Survey of the Evidence
The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures
Insurance, Entrepreneurial Start-Up, and Performance
Banking Unions: Distorted Incentives and Efficient Bank Resolution
Congestion Pricing in Urban Polycentric Networks with Distorted Labor Markets: A Spatial General Equilibrium Model for the Area Randstad
Testing for Distortions in Performance Measures: An Application to Residual Income Based Measures like Economic Value Added
Measures of Fit for Multinomial Discrete Models
Measures of Contributions to Price Discovery: A Comparison
Complexity, Robustness, and Performance
Tracing the Changing Measures of Unemployment in Dutch Unemployment Statistics 1900-1940
Growth Empirics with Institutional Measures and its Application to Transition Countries: A Survey
Predictive Performance of the Binary Logit Model in Unbalanced Samples
What determines Enterprise Performance in Russia? A Survey of the Evidence
The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures