Journal of Accounting and Economics Vol. 46 No. 1 2008
Dynamic incentives and retirement
Abstract
This paper examines multi-period compensation contracts when retirement is anticipated. Short-term contracts in long-term employment relationships are equivalent to a long-term renegotiation-proof contract. The dynamic of incentive rates is determined by (i) how and in which periods managerial effort affects the contractible performance measures; and by (ii) the time-series correlation of error terms in performance reports. The model explains why long-term investments can decrease while incentive rates increase as managers approach retirement. Earnings persistence is negatively associated to earnings-based incentive rates but, towards retirement, high earnings persistence implies increasing earnings-based incentive rates.
- DOI
- 10.1016/j.jacceco.2007.12.002
- Volume
- 46
- Issue
- 1
- Pages
- 172-200
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref