Journal of Accounting and Economics Vol. 30 No. 3 2000
Performance standards in incentive contracts
Abstract
Research in incentives has focused on performance measures and pay-performance sensitivities but has largely ignored the “performance standard”, which generates important incentives whenever plan participants can influence the standard-setting process. “Internally determined” standards are directly affected by management actions in the current or prior year, while “externally determined” standards are less easily affected. I show that companies choose external standards when prior performance is a noisy estimate of contemporaneous performance. In addition, companies using budget based and other internally determined performance standards have less-variable bonus payouts, and are more likely to smooth earnings, than companies using externally determined standards.
- DOI
- 10.1016/s0165-4101(01)00013-1
- Volume
- 30
- Issue
- 3
- Pages
- 245-278
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref