Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance

Brice Corgnet, Joaquín Gómez-Miñambres and Roberto Hernán-Gonzalez
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Joaquín Gómez-Miñambres: Chapman University, Bucknell University
Roberto Hernán-Gonzalez: Nottingham University Business School [Nottingham]
Authors registered in the RePEc Author Service: Roberto Hernán González

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Abstract: We study a principal-agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents' performance. We show that average performance of agents is higher in the presence of goal setting than in its absence despite weaker incentives. We develop a principal-agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. It follows that recognizing the pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.

Keywords: Principal-agent models; incentive theory; non-monetary incentives; goal setting; reference-dependent utility; laboratory experiments (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-lma, nep-mic and nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01364444v1
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Goal setting in the principal–agent model: Weak incentives for strong performance (2018)
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2018)
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2016)
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2016)
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