Contingent Compensation Research Articles

PERCEIVED INJUSTICE & FRAMING INCENTIVES IN PHYSICIAN COMPENSATION CONTRACTS.

We use prospect and agency theory to examine framing contingent compensation in the context of the medical profession. Different compensation forms used by the profession (fee-for-service, capitation & salary) resulted in different behavioral intentions by physicians, as well as different forms of treatment recommended for patients.

Discussion of Aggregate Performance Measures in Business Unit Manager Compensation: The Role of Intrafirm Interdependencies

Bushman, Indjejikian, and Smith consider the role in a firm's compensation practices of the performance of business units to which a manager reports (termed aggregate performance) relative to the performance of the business unit for which the manager has direct responsibility. They model and test the extent to which the relative importance of aggregate and own performance in compensation varies with selected firm characteristics, specifically measures of interdependence. The basic hypothesis is that the more informative aggregate measures are about a manager's effort choice as reflected in interdependent operations, the more important those measures will be in determining the manager's contingent compensation. Using data from a proprietary database developed by Hewitt Associates, Bushman, Indjejikian, and Smith test the implications of a simple model of the link between informativeness and the weight of alternative performance measures in compensation. They find evidence that the more interdependent the units of a firm, the more weight, on average, is given to aggregate performance results. These results tend to hold for both shortand long-term components of compensation, although the results are stronger for the former. Understanding the relative roles of own versus aggregate measures of performance in managers' compensation is important to managerial accounting researchers who want to understand the links among performance, firm characteristics, and compensation. The results in Bushman,

Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry

Using a unique international data set from a 1989–90 survey of 62 automotive assembly plants, the author tests two hypotheses: that innovative HR practices affect performance not individually but as interrelated elements in an internally consistent HR “bundle” or system; and that these HR bundles contribute most to assembly plant productivity and quality when they are integrated with manufacturing policies under the “organizational logic” of a flexible production system. Analysis of the survey data, which tests three indices representing distinct bundles of human resource and manufacturing practices, supports both hypotheses. Flexible production plants with team-based work systems, “high-commitment” HR practices (such as contingent compensation and extensive training), and low inventory and repair buffers consistently outperformed mass production plants. Variables capturing two-way and three-way interactions among the bundles of practices are even better predictors of performance, supporting the integration hypothesis.

The Effect of Behaviour Monitoring and Uncertainty on the Use of Performance-Contingent Compensation

Abstract The objective of this study is to examine the effects of control system characteristics and perceived environmental uncertainty on the relative use of performance-contingent compensation. The results, based on a survey of division managers, indicate that monitoring ability is negatively associated with the use of performance- contingent compensation. In addition, monitoring is found to moderate the relationship between uncertainty and compensation system design. Whereas in non-monitoring firms, higher levels of uncertainty are associated with increased use of performance-contingent compensation, in monitoring firms, higher levels of uncertainty are associated with decreased use of performance-contingent compensation. These results support agency theory arguments that compensation structure is determined at least in part by concerns for economic efficiency.

CEO PREFERENCES FOR INCENTIVE COMPENSATION: AN EMPIRICAL ANALYSIS.

This study contributes to the CEO pay-for- performance debate by showing how CEO preferences for contingent compensation vary according to several behaviorally-based, CEO-specific factors. Using pr...

Contingent Compensation: (How) Does It Affect Company Performance?

(1992). Contingent Compensation: (How) Does It Affect Company Performance? Journal of Economic Issues: Vol. 26, No. 2, pp. 583-592.

Taxes and executive stock options

In the Sixties, the qualified stock option was the predominant form of long-term incentive compensation contract for major industrial firms in the U.S. In the early Seventies these same firms replaced their tax-qualified stock option plans with non-qualified sttock options and later modified these plans to include a variety of new contingent compensation arrangements, some of which were based on accounting numbers instead of stock prices. This paper develops the hypothesis that tax considerations play an important role in explaining the form of compensation contracts. The pattern and timing of changes in the compensation plans of the top 100 industrial firms provides evidence consistent with the tax hypothesis.

The Contingent-Noncontingent Compensation Controversy: An Attempt at a Resolution

In order to determine whether contingent compensation has a detrimental effect on worker performance relative to noncontingent compensation (Deci, 1972b), 43 undergraduates were hired for a part-time interviewing job. A test of a proposed resolution of the noncontingent-contingent controversy (in terms of work quality enhancement under contingent compensation and work quality enhancement under noncontingent compensation) yielded support for only the prediction of quantity enhancement under contingent compensation. Moderating effects of individual differences variables (need for achievement and moral maturity) on the relationships of compensation contingency with performance indices were also evidenced.

Income Tax: Contingent Compensation Agreement Leads to Disallowance of Corporate Deduction for Salary to Nonshareholder Because of Lack of Free Bargain

Income Tax: Contingent Compensation Agreement Leads to Disallowance of Corporate Deduction for Salary to Nonshareholder Because of Lack of Free Bargain

Computation of Net Profits in Contingent Compensation Arrangements

Computation of Net Profits in Contingent Compensation Arrangements