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Incentive schemes for executive officers when forecasts matter
Author(s) -
Vergés Joaquim
Publication year - 2010
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1487
Subject(s) - incentive , perspective (graphical) , simple (philosophy) , set (abstract data type) , scheme (mathematics) , microeconomics , ratchet effect , executive compensation , economics , computer science , business , operations research , ratchet , management , mathematics , artificial intelligence , mathematical analysis , philosophy , epistemology , chaotic , programming language
This paper develops a new perspective on results‐based incentive schemes for non‐CEO managers. It shows that it is possible to establish incentive schemes that take into account both the actual output obtained and the forecast figure previously established as a target, without the negative consequences derived from the perverse loop of hiding‐ratchet effects. A general linear two‐staged scheme is proposed. In addition, relevant properties of this incentive system are stated that show how principals (corporate management) may determine the expected forecasting behavior of agents (executive officers) by suitably choosing the scheme parameters according to a simple set of rules. Copyright © 2009 John Wiley & Sons, Ltd.