Aggregate performance measures in business unit manager compensation: the role of intrafirm interdependencies

Article Abstract:

A study is conducted to identify the factors that determine the degree to which the incentive pay of business unit managers of multidivisional firms is influenced by the aggregate performance criteria evaluated at an organizational level above that of the manager's unit. A simple agency model of the incentive contracts for these managers is analyzed and employed to demonstrate that the use of aggregate performance measures instead of more localized performance rating systems depends on the interdependencies between the various divisions. This proposition is tested using proprietary business unit manager compensation data from Hewitt Assoc. LLC. Findings indicate that, with regard to annual bonus and long-term compensation plans, use of aggregate performance measures is positively related with interindustry and intergeographic segment sales, but negatively related to product-line and geographic diversification.

Performance, Measurement, Intergroup relations

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An empirical investigation of the relative performance evaluation of corporate executives

Article Abstract:

Executive compensation is tested to determine if executives are compensated as if their performance were compared to the performance of their competitors. Recent work has shown that tying compensation to relative performance (thereby filtering out systematic risk) improves the efficiency of contracts with executives. Of the thirty-nine firms examined in the study, executive compensation appeared to be tied to relative performance in sixteen firms. These results are discussed and suggestions are made for future research.

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An analysis of the relation between the stewardship and valuation roles of earnings

Article Abstract:

The impact of firms' earnings data disclosure, on stock prices and executive compensation, is examined.

United States, Regulation, Licensing, and Inspection of Miscellaneous Commercial Sectors, Reporting & Disclosure, Management Compensation, Stockholder Reports, Financial Regulation & Reporting, Analysis, Stocks, Stock prices, Corporation reports, Annual reports, Financial disclosure

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