Absolute Performance Evaluation Research Articles

2022 개정 교육과정 및 고교학점제 도입에 따른 선택과목으로서 미용교과 수요자 요구조사 및 구조화

Objectives The purpose of this survey is to examine the demand of general high school students for beauty subjects, which are elective subjects following the introduction of the high school credit system, and to seek operation plans. Methods From May to June 2022, 418 general high school students in Seoul, Gyeonggi, and Incheon were surveyed on pre-understanding of the high school credit systems, preferred institutions, curriculum types, evaluation methods, and subjects. Results The perception of the high school credit system was similar regardless of region. The preferred institutions were in the order of college, specialized high school, industry, general high school, and online classes. While the types of preferred curriculum were in the order of career subjects, convergence education, and major subjects, the group that chose “hope” preferred major subjects, and the group that chose “worry” preferred career subjects. It was found that absolute evaluation and performance evaluation were preferred, and paper-written evaluation was avoided. It was found that students were lack of awareness in supplementary program, but they hoped the program to be operated. Their preferred subjects were found to be interest-oriented classes such as hair coloring, basic beauty, basic makeup, and facial care classes. Conclusions It is necessary to make students recognize the purpose of the operation of the high school credit system and to prepare a learning environment in which practical conditions are established. It is suggested that classes should be classified by level based on students’ needs. Beauty subjects should be offered, considering whether they can induce students’ various learning experiences, career exploration and interest. Specific policies should be established for smooth curriculum management. Based on the results of this study, it is expected that the beauty curriculum will be activated as elective subjects, and the necessity of follow-up research on specific operation plans is suggested.

Relative Versus Absolute Performance Evaluation and CEO Decision-Making

AbstractWe provide new evidence on how performance-based compensation plans affect CEO decision-making, especially risk-taking. Our main finding is that relative performance evaluation (RPE) plans provide incentives for CEOs to make decisions that generate more idiosyncratic performance outcomes; absolute performance evaluation (APE) plans do not. After switches from APE to RPE, the correlation between firm stock return and industry index return falls and firm idiosyncratic risk increases. Further, switches to RPE are followed by larger deviations in financial, investment, and operating policies from industry norms (i.e., more idiosyncratic strategies). All results are opposite for switches to APE.

Performance evaluation and herd behavior in a laboratory financial market

We consider the effect of performance evaluation on the herd behavior of fund managers in a laboratory financial market. Subjects acting as fund managers receive imperfect private information concerning the fundamental value of a stock, which they then trade in sequence with a market maker. When prices are flexible, subjects regard their private information and herd less frequently than when the price is constant. When price is fixed, subjects evaluated by relative performance tend to "go with the flow" to reduce any price deviation from their peers, but when the price is flexible, herd behavior almost disappears under relative performance evaluation as the increasing trading costs squeeze the net profit of follow-up imitators. Overall, the likelihood of rational decisions under relative performance evaluation is higher than under absolute performance evaluation.

Do CEOs Make Their Own Luck? Relative Versus Absolute Performance Evaluation and Firm Risk

Influenced by their compensation plans, CEOs make their own luck through decisions that affect future firm risk. After adopting a relative performance evaluation (RPE) plan, total and idiosyncratic risk are higher, and the correlation between firm and industry performance is lower. The opposite is true for firms that adopt absolute performance evaluation (APE) plans. Plans including accounting-based performance metrics and/or cash payouts have weaker risk-related incentives. The higher idiosyncratic risk associated with RPE increases a firm's exposure to downside stock return risk and lowers credit quality. Our findings are economically consistent with observed differences in firms' financial and investment policies.

On the Relative Efficacies of Ranking and Absolute Performance Evaluation Systems

Using a setting in which an employer seeks information about talent in order to achieve a proper match between talent levels and tasks, we provide a comparative analysis of two performance evaluation systems widely used in practice— ― an absolute performance evaluation system (APE) and a tournament or a ranking system (RE). An important consideration in such an analysis is the extent to which these systems are susceptible to performance manipulation, an endemic problem with most systems that are imperfect. Ranking systems are inherently superior to absolute performance evaluation absent performance manipulation. But, as we show, ranking systems are more susceptible to performance manipulation, and, therefore, absolute performance evaluation can dominate ranking systems in some settings. We also find that greater ‡flexibility in task assignments leads to a preference for absolute evaluations. These findings support the use of absolute performance evaluation even though such a system coarsens information about talent.

Task Assignment, Relative and Absolute Performance Evaluation

Screening talent to appropriately assign tasks among agents is an important organizational decision. In this paper, we compare the efficacies of absolute and relative evaluation systems in identifying agent talent when information asymmetry is present. We identify conditions under which the firm prefers absolute evaluation. We also find that relative evaluation schemes are more susceptible to manipulation activities by agents. These findings support the use of absolute evaluation even though such a system discretizes available data by classifying agent output into performance buckets such as pass or fail. We discuss empirical implications.

Performance Evaluation and Financial Market Runs

This paper develops a model in which performance evaluation causes runs by fund managers and results in asset fire-sales. Performance evaluation nonetheless is efficient as it disciplines managers. Optimal performance evaluation combines absolute and relative components in order to make runs less likely. When runs induce large price discounts, this requires a high degree of absolute performance evaluation and a low degree of relative performance evaluation. The overall costs of using performance evaluation are shown to be decreasing in asset liquidity, implying that more developed financial markets should have more delegation. However, such markets are not less prone to runs since higher delegation offsets the stability-enhancing impact of asset liquidity.

Performance Evaluation and Financial Market Runs*

This paper develops a model in which performance evaluation causes runs by fund managers and results in asset fire sales. Performance evaluation nonetheless is efficient as it disciplines managers. Optimal performance evaluation combines absolute and relative components in order to make runs less likely. When runs induce large price discounts, this requires a high degree of absolute performance evaluation and a low degree of relative performance evaluation. The overall costs of using performance evaluation are shown to be decreasing in asset liquidity, implying that more developed financial markets should have more delegation. However, such markets are not less prone to runs.

A comparison of cardinal tournaments and piece rate contracts with liquidity constrained agents

A celebrated result in the theory of tournaments is that relative performance evaluation (tournaments) is a superior compensation method to absolute performance evaluation (piece rate contracts) when the agents are risk-averse, the principal is risk-neutral or less risk-averse than the agents and production is subject to common shocks that are large relative to the idiosyncratic shocks. This is because tournaments get closer to the first best by filtering common uncertainty. This paper shows that, surprisingly, tournaments are superior even when agents are liquidity constrained so that transfers to them cannot fall short of a predetermined level. The rationale is that, by providing insurance against common shocks through a tournament, payments to the agents in unfavorable states increase and payments in favorable states decrease which enables the principal to satisfy tight liquidity constraints for the agents without paying any ex ante rents to them, while simultaneously providing higher-power incentives than under piece rates. The policy implication of our analysis is that firms should adopt relative performance evaluation over absolute performance evaluation regardless of whether the agents are liquidity (wealth) constrained or not.

ROLE OF RELATIVE AND ABSOLUTE PERFORMANCE EVALUATIONS IN INTERGROUP COMPETITION

We investigate the moral hazard problem in which a principal delegates multiple tasks to multiple workers. The principal imperfectly monitors their action choices by observing the public signals that are correlated with each other through a macro shock. He divides the workers into two groups and makes them compete with each other. We show that when the number of tasks is sufficiently large, relative performance evaluation between the groups accompanied with absolute performance evaluation results in eliminating unwanted equilibria. In this case, any approximate Nash equilibrium nearly induces the first-best allocation.

HETEROGENEOUS CONTESTS AND LESS INFORMATIVE SIGNALS*

We consider rank-order contests with heterogeneous agents in which the principal is restricted to using a fair contest (or a symmetric contest), focusing on the optimal accuracy of output signals. As opposed to the absolute performance evaluation, we show that it is optimal for the principal to deliberately make the signals noisier according to the degree of heterogeneity. Some economic interpretations of controlling noise are discussed.

Tournaments With Ex Post Heterogeneous Agents

This paper compares relative performance evaluation via tournaments to absolute performance evaluation via piece rates when agents are heterogeneous ex post, to make the point that agent heterogeneity compromises the insurance function of tournaments. In particular, we show that the more heterogeneous agents are the less insurance can be offered through tournaments and the less dominant tournaments are over piece rates. Thus, absolute performance piece rates should be preferred when agents are highly heterogeneous. However, even with heterogeneous agents, tournaments become more desirable when the number of agents or the uncertainty about the common shock increases sufficiently.

Optimal Contracts for Ambitious Team Workers

This paper investigates the optimal compensation scheme for workers in a team who value not only absolute but also relative incomes. A worker is said to be more ambitious if his utility places more weight on relative income. In this case, the firm can exploit the worker's preference for relative comparison to design a compensation scheme which induces the same effort level with lower cost. Under the optimal compensation scheme, the workers' wages are shown to depend on relative performance, and exhibit wage compression. More importantly, even if the production technology calls for absolute performance evaluation in the traditional principal-agent model, the optimal wage structure still relies on relative performance. Finally, in contrast to past literature, worker heterogeneity is shown to reduce the firm's profit.

Tournaments and Stock Options for Chief Executive Officers

This paper is concerned with explaining the relationship between executive incentives and firm performance. Executive incentives arise from stock options and tournaments between chief executive o cers (CEOs). Our empirical evidence suggests that the sensitivity of CEO wealth to firm volatility has a positive correlation with firm performance only for low-risk firms. We find a strong negative relationship for high-risk firms. We explain this nonlinear relationship between firm performance and incentives using a model of executive compensation in which there is both an absolute and relative performance evaluation components to CEOs objective. The interaction between the two components induces excessive risk-taking by underperforming CEOs. Finally, our methodology allows us to empirically test for the existence of implicit relative performance evaluation in executive compensation.

RISK-AVERSE EXECUTIVES, MULTIPLE COMMON RISKS, AND THE EFFICIENCY AND INCENTIVES OF INDEXED EXECUTIVE STOCK OPTIONS

We extend research on executive stock options in two ways. First, we generalize Johnson and Tian's (Journal of Financial Economics, 57 (2000b)) single indexed executive stock option to incorporate multiple common risks. Second, we use an expected utility framework to analyze the efficiency and incentive effects of traditional and indexed option grants for risk-averse executives. If firms grant equal numbers of each option type and adjust their moneyness to provide equal utility to executives, single and multi-indexed option grants are less expensive than traditional options while providing stronger incentives to increase stock price. If firms adjust the number of options granted instead of their moneyness to produce equal utility, indexed option grants are more expensive than traditional grants. For firms facing multiple common risks, multi-indexed options are less expensive and provide stronger incentives to increase stock price than single indexed options.