On the Use of Nonfinancial Performance Measures in Management Compensation
No 29/2001, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)
It is often claimed that (i) managers work too hard on operational issues and do not spend enough effort on strategic activities and (ii) something can be done about this by introducing nonfinancial performance measures as for instance with a balanced scorecard. We give an explanation for both claims in a formal model. The distortion towards operational effort arises, because with financial performance measures strategic effort can only be rewarded in the future. But renegotiation-proof long term compensation plans entail too weak variable components in the future. This problem can be reduced by introducing performance measures that help to disentangle strategic and operational effects.
Keywords: Performance Measurement; Nonfinancial Measures; Balanced Scorecard; Incentives; Renegotiation (search for similar items in EconPapers)
JEL-codes: D23 J33 M41 M12 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Journal Article: On the Use of Nonfinancial Performance Measures in Management Compensation (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:zbw:bonedp:292001
Access Statistics for this paper
More papers in Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().