Compensation Schedule Research Articles

Dynamic Voltage Unbalance Constrained Economic Dispatch for Electrified Railways Integrated Energy Storage

The cophase traction power supply system (CTPSS) is a promising solution in the smart electrified railways to effectively eliminate the neutral section, improve regeneration braking energy (RBE) utilization and mitigate voltage unbalance (VU). It works by coordinating the power flow distribution (PFD) among the energy storage (ES), power flow controller, and traction transformer. However, the conventional dispatch considering VU mitigation may result in increasing extra operation costs and accelerating ES aging. Therefore, driven by the day-ahead forecasted information, a dynamic VU regulation strategy is proposed to draw up the VU compensation schedule (VU-CS), which can satisfy the probabilistic limitations of power quality standards. Consequently, a Copula-based VU dependence model is developed to transform the VU-CS into the PFD constraint set of CTPSS. Meanwhile, an ES degradation model is introduced to quantify the system operation cost within different scenarios. Taking the PFD as a VU regulation constraint, an economic dispatch scheme of CTPSS is established to obtain a minimum operation cost and maximum RBE utilization. Finally, case study tests verify the efficiency of the proposed approach. The results show that scheme can improve ES cycle life and decrease cost under the probabilistic limitations of VU.

Effect of Increased Daily Cochlear Implant Use on Auditory Perception in Adults.

Purpose Despite the recommendation for cochlear implant (CI) processor use during all waking hours, variability in average daily wear time remains high. Previous work has shown that objective wear time is significantly correlated with speech recognition outcomes. We aimed to investigate the causal link between daily wear time and speech recognition outcomes and assess one potential underlying mechanism, spectral processing, driving the causal link. We hypothesized that increased CI use would result in improved speech recognition via improved spectral processing. Method Twenty adult CI recipients completed two study visits. The baseline visit included auditory perception testing (speech recognition and spectral processing measures), questionnaire administration, and documentation of data logging from the CI software. Participants watched an educational video, and they were informed of the compensation schedule. Participants were then asked to increase their daily CI use over a 4-week period during everyday life. Baseline measures were reassessed following the 4-week period. Results Seventeen out of 20 participants increased their daily CI use. On average, participants' speech recognition improved by 3.0, 2.4, and 7.0 percentage points per hour of increased average daily CI use for consonant-nucleus-consonant words, AzBio sentences, and AzBio sentences in noise, respectively. Questionnaire scores were similar between visits. Spectral processing showed significant improvement and accounted for a small amount of variance in the change in speech recognition values. Conclusions Improved consistency of processor use over a 4-week period yielded significant improvements in speech recognition scores. Though a significant factor, spectral processing is likely not the only mechanism driving improvement in speech recognition; further research is warranted.

Workplace Incentives and Organizational Learning

This paper studies learning within organizations when incentives change. We use a simple principal-agent model to show how, in the presence of imperfect information over the shape of the production function, worker's effort choice changes over time as information is disclosed and processed. We also show that changes in workers compensation can trigger such learning process. We test this hypothesis using personnel records from a Peruvian egg production plant. Exploiting a sudden change in the compensation schedule, we find that workers learn from each other over the shape of the production function. This adjustment process is costly for the firm.

The Japanese Health Care System: An Analysis of the Funding and Reimbursement System

The modern Japanese health care system was established during the Meiji period (1868-1912) using the example of Germany. In this paper, the funding and remuneration of health services and products in Japan are described. The focus lies on the mechanisms used to implement health policy goals and to control costs. Selective literature search. All permanent residents in Japan are enrolled in one of more than 3,000 compulsory health funds. Employees and public servants are covered through company or government-related health insurance schemes. Independent workers, the unemployed and the pensioners are usually assigned to health insurance plans managed by local city governments. The elderly over 75 years are insured through special health funds managed at the prefectural level. To correct the fiscal disparities among the health insurance programs, a risk adjustment is realized by compensatory financial transfers between the funds and substantial subsidies from the central and local governments. The statutory benefits package that is identical for all insurance plans is regulated in a single comprehensive schedule. All the covered health services and products are listed with the fees and compensations, and the conditions for the service providers to be remunerated are also stated. This fee and compensation schedule is regularly revised every 2 years under the leadership of the Ministry of Health, Labor and Welfare. The revisions are intended to contain health expenditures and to set incentives for the achievement of health policy goals. The funding of the Japanese health care system and the risk adjustment mechanisms among health funds are well established and show a rather static character. The short- and mid-term development of the system is mainly controlled on the side of the expenditures through the unique and comprehensive fee and compensation schedule. The regular revisions of this schedule permit to react at relatively short notice to evolving situations, and through a policy of small improvements, target an optimization of the system as a whole.

Transfers and exchange-stability in two-sided matching problems

In this paper we consider one-to-many matching problems where the preferences of the agents involved are represented by monetary reward functions. We characterize Pareto optimal matchings by means of contractual exchange stability and matchings of maximum total reward by means of compensational exchange stability. To conclude, we show that in going from an initial matching to a matching of maximum total reward, one can always provide a compensation schedule that will be ex-post stable in the sense that there will be no subset of agents who can all by deviation obtain a higher reward. The proof of this result uses the fact that the core of an associated compensation matching game with constraints is nonempty.

Behavioral Agency Model: A Target-Oriented Approach for Executive Incentives

Recent empirical studies in Behavioral Agency Model (see Pepper and Gore, 2012) on executive compensations make evidence how the agent attitude to risk influences the subjectively perceived incentive value. The paper sets out a compensation schedule matching multiple goals: (1) aligning the incentives with the executive subjectively perceived fair and equitable compensation; (2) discouraging the executive excessive risk-taking; (3) providing an approach to calculate the certainty equivalent of the uncertain compensation. To hit the first goal we suggest to use the target-oriented decision approach (see Bordley and LiCalzi, 2000) able to guide the agent in eliciting her subjective value function through the assessment of the (uncertain) target to hit. The proposed approach is compatible with prospect theory (see Kahneman and Tversky, 1979). With reference to the second goal involving the problem on how prevent moral hazard phenomena, we suggest to insert an event-linked option. That warranty ties the compensation payment to the outgoing a set of given performance indicators taken as benchmarks. The third goal is achieved using the notion of actuarial zero-utility premium principle extended to prospect theory (see Kaluszka and Krzeszowiec, 2012, 2013). To explicit the agent subjective value function we suggest an interactive graphical method proposed by Goldstein and Rothschild (2014) based on the Distribution Builder (see Sharpe et al., 2000). Our approach generalizes the Pepper and Gore (2012, 2013) compensation formula and provides a normative foundation for constructing compensation schemes, which are coherent with Savage’s (1954) rationality axioms and prospect theory as well.

Resolving the Personalization-Privacy Dilemma: Theory and Implications of a Privacy-Preserving Contract

Personalization is an integral part of e-commerce strategy today. A unique feature of personalization is that it requires users to provide a certain amount of personal information to the service provider, thus giving rise to an interesting dilemma in that consumers cannot enjoy more personalized services without sacrificing more privacy. In this paper, we propose a mechanism that allows an online personalization vendor to provide proper incentives for consumers to share information, while protecting their privacy at the same time. The proposed solution not only enables consumers and the firm to engage in an otherwise unviable market, but it also allows the firm to implement an incentive-compatible menu that serves all consumers regardless of their privacy sensitivity. Further, we demonstrate that a minimum privacy-preservation policy is an effective device for protecting consumers’ online privacy, and that it outperforms restricting vendors’ ability in collecting customer information.Our proposed mechanism is of theoretical and practical importance: By transforming the compensation schedule (privacy preservation) into a set-compliment device to the production variable, our approach offers an alternative to the reliance on external transfer, thus eradicating a major constraint confronted by traditional mechanism design. Practically, our research proposes a realistic, easily-implementable solution to the fervent calls for endowing consumers with greater control over their online privacy. Further, it offers important policy guidelines to the regulator on not only what devices can be applied in governing the information practice of online vendors, but also exactly how social-efficiency can be enhanced.

Audit fee pricing and internationally-credible GAAP: a property rights analysis

This paper applies a property rights analysis to examine what optimal audit fee compensation schedule is required by foreign based firms in order to produce internationally-credible generally accepted accounting principles (GAAP) that are acceptable to the Securities and Exchange Commission (SEC). The SEC has property rights to take away from foreign firms their discretion over what form of internationally-credible GAAP they must comply with in order to enter US securities markets. This takings decision is costly for foreign firms because it requires them to incur higher marginal audit fees associated with complying with US GAAP and the Sarbanes–Oxley Act. Utilising an argument developed by the property rights literature, a model is presented which assumes four participants: (a) Congress; (b) the SEC; (c) foreign based firms; and (d) audit firms, who compete for political influence over the determination of internationally credible-GAAP. The optimal audit fee compensation schedule required to be incurred by foreign based firms in order to produce internationally-credible GAAP financial reports is found to depend upon with which of these interest groups the SEC’s preferences coincide. Evidence is provided which supports the proposition implied by the model that European firms overinvested in the audit expenditures required to comply with the US disclosure and legal requirements.

Incentive Contracts and Status-Concerned Agents

Abstract Traditionally in economics the actions of agents have been viewed as driven exclusively by individuals' interest in their own wealth. Nonetheless experimental evidence shows that agents enjoy being richer than their peers or, in other words, agents are interested in their status within a group. In this work I derive the optimal linear contract in a moral hazard problem where agents are risk averse and are concerned about how much they are compensated relative to their colleagues. I show that in the presence of such relative wealth concerns: 1.) It is optimal for the principal to offer a compensation schedule linked to the overall firm or team performance, even when each agent's performance is observable, contractible and independent on the actions taken by his/her colleagues; 2.) Relative Performance Evaluation is less desirable for the principal.

Corporate governance, stakeholder power, and executive compensation

Excessive executive compensation is one of the prevailing topics in the business press. The "managerial power approach", which is at the center of numerous publications of Bebchuk and Fried (Pay without performance: the unfulfilled promise of executive compensation, Harvard University Press, Cambridge, 2004) and Bebchuk and Grinstein (Oxford Rev Econ Policy 21:283---303, 2005), claims that chief executive officers (CEOs) corrupt the pay-setting process by influencing the board of directors. This paper analyzes the role of the board of directors in the pay-setting process for the CEO's compensation schedule in an optimal contracting framework. The board's role in our model is to provide information about the CEO's ability to the shareholders. We assume that the CEO and other stakeholders, such as employees' representatives, can influence the board to act in their respective favor when reporting to the shareholders. We show how the CEO's influence on the board alters the optimal contract and the CEO's incentives. Most interestingly, the influence of an interest group on the board can be the reason for high pay schedules, even though that was not the objective of the interest group.

Incentives and Relative-Wealth Concerns: Theory and Evidence

In this work I show that if risk-averse agents prefer both to be richer in absolute terms and to be richer than their peers (relative-wealth concerns), then 1) they will prefer positive correlation between their payoffs and the payoffs of other agents, and 2) they will be averse to negative correlation between payoffs. I test these theoretical predictions in a laboratory experiment. I find that subjects prefer positively correlated payoffs over risk-free and negatively correlated payoffs. Furthermore, subjects who by observing other participants' payoffs signal stronger relative-wealth concerns, also show stronger aversion to negatively correlated payoffs. Women appear to be concerned about other agents' payoffs more than men. This novel evidence has implications that help explain why firms apparently use profit-sharing and broad-based incentives contracts too extensively, and why Relative Performance Evaluation (RPE) contracts are scarcely used in common compensation practice. Further, I show that in the presence of relative-wealth concerns 1) it is optimal for a principal to offer a compensation schedule linked to the overall firm or team performance, even when each agent's performance is observable, contractible and independent on the actions taken by his/her colleagues, 2) Relative Performance Evaluation is less desirable for the principal. Finally I investigate under what conditions it is optimal for a self-concerned principal to enforce a wage secrecy policy within an organization.

The Valuation of Athletes as Risky Investments: A Theoretical Model

The desire to hire the best athletes and coaches in order to maximize team performance necessitates generous compensation contracts, which in turn increase the risk of financial distress or even bankruptcy for team owners. Indeed, one of the largest expense items in the budget of professional sport teams is the remuneration of players and coaches. Yet an investment made today in a given team yields an uncertain income in the future because team profitability depends on the uncertain performance of each player and the synchronization among players—both influenced by the coach. We present a formal theoretical model that assesses athletes’ valuation and accounts for the aforementioned factors. The optimal compensation schedule is determined empirically by regressing expected performance measures of each player with the aggregate team performance. Once the optimal schedule has been determined, the expected rate of return for the owner is earned at the lowest possible risk.

Pay for Performance (P4P) in Medical Imaging: The Time Has (Finally) Come

In life, there tends to be two (somewhat simplistic) views on payment. The first (and more common) is that services rendered generate a fixed payment. It does not matter whether you take the perspective of the employer, employee, or customer. All three parties know up-front what they are expecting and willing to pay (and receive), based upon a mutually agreeable compensation schedule. In the workplace, employers and employees will periodically review this compensation schedule and make systematic adjustments based on market conditions. Although this commonly follows an upwards trajectory (i.e., progressively increasing salaries), this is not always the case as evidenced by the recent decline in compensation benefits within the airline industry. When salary increases do occur, they are frequently passed on to the customers, often creating inflationary pressures within the marketplace. This has certainly been the case throughout the health care industry, where prices for goods and services have continuously trended upwards, often irrespective of the quality and timeliness of these services. Recent estimates by the Centers for Medicare and Medicaid Services (CMS) predict national health care expenditures to grow 2.5% faster than the gross domestic product (GDP), with the percentage of GDP spent on health services predicted to grow from its current rate of 15% to 17% in 2011.1 This figure is almost twice as high as comparable health care expenditures in the United Kingdom and is projected to exhaust the Medicare hospital trust fund by 2019.2 The second (and less common) school of thought on payment is one which is incentive-based, tying payment to performance. This “sliding scale” approach is often met with skepticism, largely out of concerns over how (and by whom) the payment will be calculated. If a supplier of goods and services was to defer to the customer on determining “fair and equitable” compensation, the recommended figure would in all likelihood be less than the “standard market rate”. If, on the other hand, the consumer of these goods and services was to appropriate pricing to the provider, an equal degree of disparity will emerge. In the end, determining “fair and equitable” pricing becomes highly subjective, especially when objective comparison data is in such short supply. On face value, this pay-for-performance (P4P) pricing model becomes too subjective and uncertain to gain wide acceptance. But does that necessarily have to be the case?

EVALUATION OF THE CONSEQUENCES OF VARIOUS RESPONSE OPTIONS USING MODELING OF FATE, EFFECTS AND NRDA COSTS OF OIL SPILLS INTO WASHINGTON WATERS

ABSTRACT Oil spill fate and effects modeling and analysis were performed to evaluate the implications of spill response options being considered by the Washington State Department of Ecology in their rulemaking related to oil spill preparedness (WA State Contingency Plan Rule). The impacts of potential spills in Washington's outer coast, sound and river environments were modeled varying response options and operational timing, including use of conventional mechanical containment and recovery operations; dispersant application with concurrent mechanical containment and recovery; and in-situ burning with concurrent mechanical containment and recovery. US Coast Guard federal response capability standards, current Washington State standards, and potential theoretical higher response capability standards were simulated for scenarios involving spills of crude oil, bunker fuel and diesel into Washington waters (in the Strait of Georgia, Strait of Juan de Fuca, outer coast, and lower and upper Columbia River). The modeling was performed in probabilistic mode, i.e., by randomly varying location along tanker routes, spill date, and time, and so environmental conditions during and after the release among potential conditions that would occur. The model results were analyzed to estimate mean, standard deviation (SD), and 5th, 50th and 95th percentile results for surface water and shoreline oiling, water column and sediment contamination, biological impacts, and natural resource damages (NRD). NRD costs were based on the Washington Compensation Schedule and Oil Pollution Act (OPA) NRD procedures involving compensatory restoration scaling and associated costs. Response costs and socioeconomic damages were evaluated in a companion study by D.S. Etkin (Environmental Research Consulting). The fates, impacts and NRD cost results for two scenarios are presented here: those for the outer coast spills assuming (1) only protective booming and (2) protective booming plus the mechanical removal up to Washington State standards. The results of these and other scenarios are being incorporated into a rulemaking process and cost-benefit analysis by the Department of Ecology.

Inventories, employment and hours

This paper develops a model that integrates inventory and labor decisions. We extend a model of inventory behavior to include a detailed specification of the role of labor input in the production process, distinguishing between employment, hours and effort per worker. We estimate jointly the Euler equations for inventories and employment, a labor compensation schedule, and an hours requirement function with the cross-equation restrictions imposed. The econometric results shed light on several important topics, including the shape of the marginal cost of output, the role of labor hoarding as an explanation of pro-cyclical productivity, and the persistence of inventory stocks.

Technology learning from the lawmaker's point of view

The paper gives an overview over the German energy policy in the area of renewable energy sources. It focuses on the Renewable Energies Act (REA) of April 1, 2000, which has shown to be the main stimulus for the upswing of the market of renewable energies in Germany. One of the key features of the REA is the declining compensation schedule which aims at generating and stimulating learning curve effects. The paper shows the key findings of a report to the German Bundestag on the market and on the cost trend of installations for the use of photovoltaics, wind power, biomass and hydropower.

Estimation of an efficient tomato contract

Summary An agency model of contracts used in California’s processing-tomato industry is estimated in three stages. We first estimate growers’ stochastic production possibilities, and then, for a given vector of preference parameters, compute an optimal compensation schedule. Finally, we compare computed compensations with actual compensations and choose preference parameters to minimise distance between the two. Assuming perfect competition and risk neutrality for processors, we obtain an estimate of 0.08 for growers’ measure of constant absolute risk aversion, and find that growers who face higher-powered incentives produce higher levels of soluble solids, at a cost that is 1.8 per cent greater than otherwise. Efficiency losses from information constraints are 1 per cent of mean compensation, whereas existing quality measurement improves efficiency by 1.08 per cent.

Managerial Compensation and the Cost of Moral Hazard

This article investigates managerial compensation and its incentive effects. Our econometric framework is derived from a multiperiod principal‐agent model with moral hazard. Longitudinal data on returns to firms and managerial compensation are used to estimate the model. We find that firms would incur large losses from ignoring moral hazard, whereas managers only require moderate additional compensation for accepting a contract that ties their wealth to the value of the firm. Thus the costs of aligning hidden managerial actions to shareholder goals through the compensation schedule are much less than the benefits from the resulting managerial performance.

Death and dignity: Terminal illness and the market for non-treatment

We construct a stochastic model of illness, death and treatment choice to analyze two proposals – legally-binding advance directives and insurer-paid compensation schemes – to reduce the incidence of aggressive and possibly futile end-of-life treatment. We assess whether, in a competitive insurance market, the proposals are consistent with (i) individual rationality in selection of competitive insurance contracts; (ii) medically ethical treatment provision; and (iii) reductions in end-of-life expenditures. We conclude that binding advance directives are always medically unethical, while compensation schemes are medically ethical. We derive the compensation schedule arising in a competitive equilibrium, and show that it reduces aggressive treatment and satisfies individual rationality.

Resolving Conflict in Applying the Washington State Natural Resource Damage Assessment Compensation Schedule-Spill Volume Determination in the Absence of Volumetric Methods

ABSTRACT Many jurisdictions rely upon compensation formulae for environmental damages caused by oil spills in lieu of protracted in situ studies. Formulae often rely on quantity and physical properties of the oil. The State of Washington Natural Resource Damage Assessment (NRDA) compensation schedule is primarily based on quantity spilled. The quantity spilled is multiplied by relative values or scaling factors related to general environmental effect and habitat vulnerability indices. Using the formula, a range of $l–$50 dollars per gallon is possible. Spill volume estimation is therefore an important and sometimes controversial issue, especially when spilled volumes are not quantifiable by conventional volumetric methods. While methods of estimating spilled oil from recovery equipment, on the water, and along the shoreline are available, quantifying oil that may be bound to items in the waste stream presents many challenges and must address difficulties such as evaporative oil loss, water bound to recovered materials, varied types of absorbent materials and oiled debris among others. Attempts to quantify recovered oil from the M/V Nosac Forest (1993), Tosco Ferndale (1997), and M/V Anadyr (1998) oil spills yielded reasonable but uncertain results. Questions remain with respect to the accuracy of oil recovery estimates and the cost-effectiveness of the approach. Utilizing assumptions is necessary in any oil volume estimation technique and can be the basis for contention. However, utilizing a collaborative investigative process, where both state and responsible party investigators participate, can alleviate many potential concerns. While uncertainty remains, a collaborative process can lead to consensus and a cost-effective approach to spilled-oil estimation techniques in the absence of conventional volumetric methods.