The Value of Non-Value-Maximizing Managers

Pierre Chaigneau, Alex Edmans and Nicolas Sahuguet

No 21603, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Companies pursue multiple goals, such as financial returns and societal impact. Conventional wisdom suggests they should appoint managers who share investors' preferences across these goals. We show that, when performance measurement is asymmetric, appointing a manager who is biased towards the worse-measured activity ("impact") may instead be optimal. Doing so allows for stronger incentives on the better-measured activity ("profits") without distorting resource allocation. Strong financial incentives need not indicate that the manager lacks intrinsic motivation; instead, they counteract his intrinsic motivation for impact. Similarly, strong financial incentives need not imply that a mission-focused firm is greenwashing; it pursues its mission through a biased manager rather than impact incentives. In a market equilibrium with a continuum of managers, we characterize the optimal level of bias and how it affects the level and structure of pay. The framework offers new insights into executive incentives, corporate purpose, and organizational culture.

Date: 2026-06
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