Abstract
Organizations can use subjective performance pay when verifiable performance measures are imperfect. However, this gives supervisors the power to direct employees toward tasks that mainly benefit the supervisor rather than the organization. We cast a principal–supervisor–agent model in a multitask setting, where the supervisor has an intrinsic preference toward specific tasks and may receive soft information on the agent's efforts. We show that subjective performance pay based on evaluation by a biased supervisor has the same distorting effect on the agent's effort allocation across tasks as incentive pay based on an incongruent performance measure. Combining incongruent performance measures with biased supervision can mitigate, but does not always eliminate this distortion. We apply our results to the choice between specialist and generalist middle managers, where a trade-off between monitoring ability and bias arises.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
