Contract Performance Measurement Research Articles

Procurement Practices and Performance of Private Universities in West Nile, Uganda

This study examined the effect of procurement practices on the performance of private universities in West Nile, Uganda. Five private universities dully accredited by the National Council of Higher Education were analyzed. Using simple random sampling technique, a sample size of 140 employees was used. Data were sourced using a structured questionnaire. Analysis was conducted using both SPSS and SEM. The findings revealed that contract management is a significant precursor of private university performance. While unexpectedly, procurement planning and supplier selection proved to be statistically insignificant predictors of private university performance. Practically, this study will help private university owners improve performance by embracing practices such as contract inspection, documentation, relationship management, good communication and contract performance measurement. Additionally, given the need for improved performance of private universities in West Nile in particular, and Uganda in general, this study offers the understanding of a holistic view of performance from the procurement perspective and this is relevant for academicians.

Blockchain Smart Contract to Prevent Forgery of Degree Certificates: Artificial Intelligence Consensus Algorithm

Certificates are often falsified, such as fake diplomas and forged transcripts. As such, many schools and educational institutions have begun to issue diplomas online. Although diplomas can be issued conveniently anytime, anywhere, there are many cases wherein diplomas are forged through hacking and forgery. This paper deals with the required Blockchain diploma. In addition, we use an automatic translation system, which incorporates natural language processing, to perform verification work that does not require an existing public certificate. The hash algorithm is used to authenticate security. This paper also proposes the use of these security protocols to provide more secure data protection. In addition, each transaction history, whether a diploma is true or not, may be different in length if it is presented in text, but converting it into a hash function means that it is always more than a certain length of SHA-512 or higher. It is then verified using the time stamp values. These chaining codes are designed. This paper also provides the necessary experimental environment. At least 10 nodes are constructed. Blockchain platform development applies and references Blockchain standardization, and a platform test, measurement test, and performance measurement test are conducted to assess the smart contract development and performance measurement. A total of 500 nodes were obtained by averaging 200 times, and a Blockchain-based diploma file was agreed upon at the same time. It shows performance information of about 4100 TPS. In addition, the analysis of artificial intelligence distribution diagram was conducted using a four-point method, and the distribution chart was evenly distributed, confirming the diploma with the highest similarity. The verified values were then analyzed. This paper proposes these natural language processing-based Blockchain algorithms.

Contracting on What Firm Owners Value

We revisit foundational questions in agency theory while assuming that the agent can fine-tune the joint distribution of all contractible and non-contractible performance measures. Under this assumption, optimal contracts behave as if the principal were making inferences about the outcome she values rather than about the agent's action. This has significant implications for what measures are included in contracts and how those measures are used. Most importantly, Holmstrom's (1979) informativeness principle changes. A performance measure is valuable if it improves inferences not about the agent's action, but about the outcome the principal values; and if that outcome is contractible, additional measures have no value. Our model predicts that contracts should be written only on outcomes that firm owners value, consistent with real-world contracts that tie executive pay to only a handful of accounting, market, or nonfinancial measures.

When Is (Performance-Sensitive) Debt Optimal?

Existing theories of debt consider a single contractible performance measure (output). In reality, many other performance signals are also available. It may seem that debt is no longer optimal; for example, if the signals are sufficiently positive, the agent should receive a payment even if output is low. This paper shows that debt remains the optimal contract under additional signals -- they only affect the face value of debt, but not the form of the contract. We show how the face value should depend on other signals, providing a theory of performance-sensitive debt.

Make-or-Buy Decisions and the Manipulability of Performance Measures

The make-or-buy decision is analyzed in a simple framework combining contractual incompleteness with the existence of an imperfect but contractible performance measure. Contractual incompleteness gives rise to two regimes, identified with make and buy. The performance measure on which comprehensive contracts can be written is imperfect in the sense of being subject to manipulation. The performance incentives faced by the agent are stronger in the "buy" regime. A positive (negative) impact -- or "externality" -- of manipulation on true performance favors make (buy).

Discretion in Bonus Plans

ABSTRACT: This study examines discretionary bonus payments by firms to senior-level executives. Interpreting discretionary bonuses as the result of implicit incentive contracts, I analyze an analytical model that includes a contractible and a non-contractible performance measure. The model yields the primary hypothesis that discretionary bonuses occur when the outcome of the contractible measure is either low or high, but not when the contractible outcome falls in the medium range. Based on a sample collected from public sources, I find empirical support for the notion that discretionary bonuses are paid based on non-contractible performance measures that are related to future financial performance. Moreover, discretionary bonus payments occur significantly more often when the contractible performance measure falls in the tails of the distribution. In contrast, I do not find support for the predictions that discretionary bonus payments are related to the manipulability of the contractible performance measures or that discretionary bonus payments are related to the power of the executives in the companies.

Soft information and the stewardship value of accounting disclosure

In light of IASB’s statement to drop stewardship as a separate objective of financial accounting and the ongoing debate about increasing the disclosure of soft information, we investigate the economic consequences of publicly reported soft information from a stewardship perspective. In an LEN model we include market price as a performance measure and investigate whether the principal benefits from disclosing additional information. While the principal can only use contractible performance measures in the contract with the agent, capital market participants can only use disclosed information when pricing firm value. We find that the disclosure of information can decrease the principal’s expected net profit. This result follows from either a noisier or a less congruent market price as a consequence of disclosing additional information. Thus, we present a rationale for partial disclosure in the absence of proprietary costs or the uncertainty of information endowment.

Task-specific abilities in multi-task principal–agent relationships

This paper analyzes a multi-task agency framework where the agent exhibits task-specific abilities. It illustrates how incentive contracts account for the agent's task-specific abilities if contractible performance measures do not reflect the agent's multidimensional contribution to firm value. This paper further sheds light on potential ranking criteria for performance measures in multi-task principal–agent relationships. It demonstrates that performance measures in multi-task agencies cannot necessarily be compared by their respective signal-to-noise ratio as in single-task agency relationships. In fact, it is indispensable to take the induced effort distortion and the measure-cost efficiency into consideration—both determined by the agent's task-specific abilities.

Nonfinancial Performance Measures and Physician Compensation

ABSTRACT: The Evans et al. (2010; hereafter EKNP) study maps rich survey data into plausible proxies for an array of conceptual variables of interest. It documents novel empirical evidence of determinants of the use of contractible performance measures and demonstrates the importance of nonfinancial performance measures (NPMs) in compensating physicians. The study also highlights the importance to future NPM researchers of a clear definition of NPMs and the application of that definition consistently throughout a given study. In addition, it is conceivable that the variables the EKNP study uses as moderators of the pay-for-performance relation might also moderate pay-for-complexity and pay-for-size relations. Finally, a further path forward from the study’s context is that physician attributes, which can be measured in creative ways, likely affect physician compensation.

Soft Information and the Stewardship Value of Accounting Disclosure

In the light of IASB's statement to drop stewardship as a separate objective of financial accounting and the ongoing debate about increasing the disclosure of soft information, we investigate the economic consequences of publicly reported soft information from a stewardship perspective. In a LEN model we include market price as a performance measure and investigate whether the principal benefits from disclosing additional information. While the principal can only use contractible performance measures in the contract with the agent, capital market participants can only use disclosed information when pricing firm value. We find that the disclosure of information can decrease the principal's expected net profit. This result follows from either a noisier or a less congruent market price as a consequence of disclosing additional information. Thus, we present a rationale for partial disclosure in the absence of proprietary costs or the uncertainty of information endowment.

Incentives, Cost Allocation and Taxes in a Multi-task Setting

This paper investigates strategic cost allocation in a single-period principal-agent setting, where the principal has two contractible performance measures available for contracting and the agent controls two productive tasks subject to moral hazard. In this setting, cost allocation shifts profit between the two performance measures (or between two taxable entities). There are two sources of error in cost allocation: random noise and strategic cost allocation under the agent's control. We first provide conditions under which such cost allocation errors lead the principal to abandon cost allocation and rely on a simple aggregate performance measure. We next consider a setting where the two performance measures represent divisional profits that are taxed at different rates. In this setting, the agent's ability strategically shift costs between the divisional performance measures is beneficial to the principal and leads to different relative performance weights for the two divisional performance measures.

Dynamic incentives and retirement

This paper examines multi-period compensation contracts when retirement is anticipated. Short-term contracts in long-term employment relationships are equivalent to a long-term renegotiation-proof contract. The dynamic of incentive rates is determined by (i) how and in which periods managerial effort affects the contractible performance measures; and by (ii) the time-series correlation of error terms in performance reports. The model explains why long-term investments can decrease while incentive rates increase as managers approach retirement. Earnings persistence is negatively associated to earnings-based incentive rates but, towards retirement, high earnings persistence implies increasing earnings-based incentive rates.

Relational Contracts, Multitasking, and Job Design

This article analyzes optimal job design in a repeated principal-agent relationship when there is only one contractible and imperfect performance measure for three tasks whose contribution to firm value is nonverifiable. The tasks can be assigned to either one or two agents. Assigning an additional task to an agent strengthens his relational contract. Therefore, broad task assignments are optimal when the performance measure strongly distorts incentives for the two-task job. This is more likely to be the case if these two tasks are substitutes.

Performance Measure Properties and Delegation

In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the ability to resolve the incentive problem depends on the contractibility of financial performance measures versus non-financial performance measures, where the contractibility depends on the performance measure properties sensitivity, precision, and verifiability. The empirical results show that, if financial performance measures are good (poor) incentive measures, i.e., high (low) on sensitivity, precision, and verifiability, then using these measures for incentive purposes increases (decreases) delegation. Overall, the results are consistent with the argument that firms design their organizational structure around the quality of contractible performance measures.

Performance Measure Properties and Delegation

In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the ability to resolve the incentive problem depends on the contractibility of financial performance measures versus nonfinancial performance measures, where the contractibility depends on the performance measure properties sensitivity, precision, and verifiability. The empirical results show that, if financial performance measures are “good” (“poor”) incentive measures, i.e., high (low) on sensitivity, precision, and verifiability, then using these measures for incentive purposes increases (decreases) delegation. Overall, the results are consistent with the argument that firms design their decision-making process around the quality of contractible performance measures.

Relational Contracts and Job Design

This paper analyzes the problem of optimal job design when there is only one contractible and imperfect performance measure for all tasks whose contribution to firm value is non-veritable. I find that task splitting is optimal when relational contracts based on firm value are not feasible. By contrast, if an agent who performs a given set of tasks receives an implicit bonus, the principal always benefits from assigning an additional task to this agent.

Relational Contracts and Job Design

This paper analyzes optimal job design in a repeated principal-agent relationship when there is only one contractible and imperfect performance measure for three tasks whose contribution to firm value is non-verifiable. The tasks can be assigned to either one or two agents. Assigning an additional task to an agent strengthens his relational contract. Therefore, broad task assignments are optimal when the performance measure strongly distorts incentives for the two-task job. This is more likely to be the case if these two tasks are substitutes.

Task-Specific Abilities in Multi-Task Principal-Agent Relationships

This paper analyzes a multi-task agency framework where the agent exhibits task-specific abilities. It illustrates how incentive contracts account for the agent's task-specific abilities if contractible performance measures do not reflect the agent's multidimensional contribution to firm value. This paper further sheds light on potential ranking criteria for performance measures in multi-task principal-agent relationships. It demonstrates that performance measures in multi-task agencies cannot necessarily be compared by their respective signal-to-noise ratio as in single-task agency relationships. In fact, it is indispensable to take the induced effort distortion and the measure-cost efficiency into consideration - both determined by the agent's task-specific abilities.

Contracting with a Long-Horizon Agent on a Short-term Project

We analyze a setting in which a short-term project is executed by an agent who has a long-term horizon, which is manifested in the form of career concerns. In particular, the agent may have an incentive to take actions that are not completely compatible with the interests of the hiring principal, in order to inform the labor market of the agent's abilities. We find that the relation between the incentive weight on a contractible performance measure and the noise in that measure depends on the strength of the career concerns. We further show that the decision to disclose a performance measure that the labor market uses to update beliefs about the agent's ability depends on both the strength of the career concerns and the compatibility of non-contractible outcomes with the principal's interests. The results have direct implications for the ongoing debate regarding whether firms should make more transparent the basis on which executive compensation is paid.

Zur verzerrten Performancemessung in Agency-Modellen

A central assumption in many models on incentive contracting is that the principal’s objective is always a contractible performance measure. In many situations this assumption is not supportable, and for an evaluation of the agent’s effort alternative and oftentimes distortionary performance measures must be used. Under these circumstances the question arises which factors determine the quality of a good performance measure. We show that the quality of such an alternative measure is determined by the fact how it responds to the agent’s actions in relation to the way the principal’s objective responds to these actions. Furthermore, it is demonstrated that, in general, inefficiency occurs even if the agent is risk neutral.