Performance-based Compensation Research Articles

Public employment in the Middle East and North Africa

Public sector hiring has been an essential component of the social bargains that have maintained political stability in the Middle East and North Africa (MENA). As these bargains eroded, public sector workforces contracted in relative terms owing to a partial freeze on hiring and the promise of lifetime job security for incumbent workers. This had profound effects on the age composition of the workforce. The upcoming retirement of many workers provides an opportunity to restructure public sector hiring to emphasize meritocratic recruitment processes and performance-based compensation systems.

Menyelaraskan Hubungan Gaya Pemimpin Pada Kondisi Pemberian Kompensasi Untuk Memaksimalkan Kinerja Di PT Kresna Reksa Finance Jakarta

PT Kresna Reksa Finance Jakarta can achieve its goals well if it runs the company according to its target by aligning its leadership style to performance-based compensation. The aim of this study is to determine whether the leader style when giving compensation can simultaneously improves company performance at PT Kresna Reksa Finance. Based on the research observations there are some problems that occur among some employees who feel their salary is low, also the allowances and bonuses are not appropriate, it needs serious management attentio. This study uses the personally administered questioneres method that is a face-to-face distribution questionnaire method to the respondent. This study illustrates that the value of leadership style towards compensation is in accordance with the performance that has been applied so that the company's target is exceeded. This can be seen from the equation of Y = 37,215 + 0.439X1 + 0.493X2 with the R-square of 0.78, which means that 78% of the independent variables of leadership style on the application of compensation are in accordance with performance and able to minimize the influence of other factors with a value of 22% other independent variables. The conclusion is that PT Kresna Reksa Finance Jakarta is appropriate and hopes to harmonize the relationship of leadership style, compensation, and performance of its employees

Novel Residential Energy Demand Management Framework Based on Clustering Approach in Energy and Performance-based Regulation Service Markets

Flexible electric loads are key elements in the path to a sustainable electric grid with high penetration of green resources. With the increasing level of intermittent wind and solar generation replacing the conventional power plants, there is a growing trend to involve electricity consumers in the balancing activity between the generation and consumption. In this paper, a bi-level demand response scheduling framework is proposed for residential load aggregators in which the planning scope spans a diverse set of loads and activities including inflexible loads, electric vehicles, air conditioning and water heating TCLs, energy storage system, and energy and regulation service scheduling on a residential distribution feeder with relevant constraints. Novel aggregation mechanism is proposed to capture the flexibility of heterogeneous loads based on clustering concept. In particular, the aggregation model of rapidly-growing inverter-based TCLs is derived using the proposed clustering techniques. Also, participation in regulation service market is based on the performance-based compensation scheme adopted by ISOs. The presented approach is applicable to day-ahead and real-time markets with a reliably fast calculation process. The results are indicative of the accuracy and sufficiency of the derived models.

Curvilinear effect of transformational leadership on innovative behavior among R&D teams in South Korea

PurposeThe purpose of this paper is to examine the potential consequences of transformational leadership on follower innovative behavior as well as to investigate the moderating effect of team learning on the relationship. It is argued that an excessive level of transformational leadership may even decrease the subordinates’ innovative behavior due to their negative emotions derived from the leadership, while an appropriate level of transformational leadership can positively influence innovative behavior. Furthermore, the situational factor of team learning, which reinforces the positive feelings of team members through their improved competency, can amplify the positive impact and diminish the negative impact of transformational leadership on innovative behavior.Design/methodology/approachData were collected from R&D teams of large- and mid-sized companies in Korean industries. Survey data from 307 team members and 51 team leaders from 51 project teams were tested using hierarchical linear modeling analysis. Team members evaluated the transformational leadership of their team leaders as well as the perceived level of learning in their teams, and team leaders evaluated the innovative behavior of their team members.FindingsMulti-level analysis confirmed a non-linear relationship (an inverted U shape) between transformational leadership of team leaders and innovative behavior of team members. It means innovative behavior was negatively related to excessive transformational leadership and positively related to a modest level of the leadership. Furthermore, statistical analysis confirmed the positive multi-level moderating effect of team learning.Research limitations/implicationsThe core dimension of transformational leadership, charisma, was the only measurement of the leadership in this study. Most South Korean companies adopted performance-based compensation systems and charisma is a prevailing leadership behavior at emerging market of the nation. As such, other dimensions of transformational leadership such as “individualized consideration” or “intellectual stimulation” are relatively neglected in most companies of South Korea. Future research needs to consider these other dimensions for the generalization in research.Practical implicationsLeaders in emerging markets, such as project team leaders or R&D team leaders, should avoid immoderate transformational leadership and should maintain a proper level of transformational leadership. The contemporary leaders also need to utilize team learning to maximize innovative behavior.Originality/valueThese findings illustrate the disadvantage of excessive transformational leadership and highlight the neutralization effect of team learning on the negative impact of the excessive leadership. Team learning has the potential to enhance members’ innovative behaviors, and it could moderate the perceptions of excessive transformational leadership.

Payday Before Mayday: CEO Compensation Contracting for Distressed Firms

Using a sample of more than 1,500 US public firms in the period 1998-2016, we examine how firms endogenously adjust CEO compensation contracts when they become financially distressed. The link between compensation and equity-based measures of firm performance is positive and strong prior to distress, but declines and becomes insignificant when firms are in distress. However, the relationship of pay to cash flow performance remains positive for distressed firms. Directly examining the ex-ante incentives provided in contracts rather than ex-post payouts, we provide evidence that firms respond to the onset of distress by providing incentives oriented toward improving cash flows. Specifically, distressed firms increase their use of performance-based pay but re-orient performance metrics towards cash flow related measures and set performance targets farther above prior performance. Further, these firms reduce equity-oriented incentives by increasing the proportion of expected performance-based compensation to be paid in cash rather than stock. These changes are economically most important for firms with the greatest need to replace out-of-the-money equity-based incentives, and in the years immediately preceding an actual default or bankruptcy. Overall, our findings are consistent with agency theory predicting that reduced incentives require contract realignment of managers with relevant stakeholders of distressed firms.

Does Firm Performance Reduce Managerial Opportunism? The Impact of Performance-Based Compensation and Firm Performance on Illegal Accounting Restatement.

In this study, we present a timely research with regard to managers' opportunistic behaviors - financial statement manipulation. We inquire as to whether the performance-based compensation (PBS) granted to managers influences managerial opportunism. We further examine whether firm performance reduces managerial opportunism. Specifically, we investigate the moderating roles of firm performance - corporate responsibility (CR) and corporate financial performance (CFP) on managers' opportunistic behaviors. For empirical testing, we used three databases, KLD social data, ExecuComp data, and CompuStat data, and employed hierarchical binomial logistic regression analysis. As hypothesized, PBC has a positive and significant effect on managers' opportunistic behaviors, measured as accounting restatements. However, better CR does not reduce managers' propensity for accounting restatements. CFP has mixed effects. The study's results suggest the need to develop a deeper understanding of the relationship of firm performance to opportunistic behaviors.

Performance-Based Compensation in Professional Service Firms

The purpose of this paper is to extend our understanding of theoretical agency considerations in the choice of compensation contracts by examining the use of performance-based compensation in professional service firms. We focus on compensation practices for physicians in medical group practices because this setting has several distinctive features that enhance our ability to study a wide variety of agency issues. Our sample covers 16,659 individual physicians in 778 practices. Consistent with agency theory, we find that the extent to which individual physicians are compensated using performance-based pay increases with the informativeness of standard clinical productivity measures. Monitoring serves as substitutes for performance-based compensation, but only in member-owned firms. The use of a common salary/bonus mix for all physicians is greater in smaller practices with little diversity in practice specialties. Member-owned firms also tend to use a common compensation mix when surgeons represent a greater proportion of members and when physicians staff hospitals, but tend to tailor the mix when there is greater variation in physician experience and in the amount of time physicians spend on non-clinical activities. Finally, equal-share arrangements tend to be used instead of salaries and/or bonuses in more technical practices where physicians have similar specialties and experience levels.

Optimal stopping investment with non-smooth utility over an infinite time horizon

This study addresses an investment problem facing a venture fund manager who has a non-smooth utility function. The theoretical model characterizes an absolute performance-based compensation package. Technically, the research methodology features stochastic control and optimal stopping by formulating a free-boundary problem with a nonlinear equation, which is transferred to a new one with a linear equation. Numerical results based on simulations are presented to better illustrate this practical investment decision mechanism.

An Agency Model Free from the Utility Theory

In most of the agency literature, risk aversion or dis-utility of effort are necessary to form a nontrivial problem. However, the utility theory has been challenged in many studies. This paper examines two alternative sources of moral hazard other than risk or effort aversion. Here, the agent is risk-neutral and does not incur (different levels of) dis-utility from making decisions. He is responsible to allocate a finite resource to multiple tasks or divisions. The resource has a concave effect on the expected output and the performance of each task, reflecting its diminishing return. Consequently, the resource scarcity imposes an ellipsoidal constraint on the expected output levels. The value created and the agent’s payment (contract) both linearly depend on the measurable outputs of the tasks. The optimal linear contracts for different situations are found using KKT conditions. We see information asymmetry does not necessarily induce moral hazard when there is no other source of tension. After imposing a limit on salary, we see that it is not optimal to pay the agent based on his contributed value even though this value is measurable from the outputs. The solutions to the complete model debunk the common “incentive alignment” paradigm that the performance-based compensation should be proportional to the value the agent creates. In fact, gain-sharing plans are not optimal, however measurable the gain is. Furthermore, maximizing the principal’s net profit is not equivalent to maximizing the value created.

Do players perform for pay? An empirical examination via NFL players’ compensation contracts

Abstract How to properly compensate and incentivize players is an important question in the realm of professional sports, and more broadly, is a central question in contract design. With the increasing use of performance-based compensation packages and tax law favoring such compensation design, a natural question arises as to whether workers do indeed perform for pay. We examine this question in a setting that is not fraught with the typical measurement and identification problems found in many pay-performance settings. Specifically, we examine changes in a NFL player's Win Probability Added (WPA) and Expected Points Added (EPA) in response to his compensation-contract design. Overall, our paper provides evidence that players do indeed perform for (properly designed) pay, and has important implications for future work on compensation and incentive-based contract design.

Management sub-advising in the mutual fund industry

This is a study of how contractual mechanisms can mitigate agency conflicts in sub-advised mutual funds. Sub-advising contracts allow fund families to expand their product offerings to include new investment styles and thereby gain market share. We show that costly contractual arrangements, such as co-branding, multi-advising, and performance-based compensation, can mitigate agency conflicts in outsourcing and protect investors from potential underperformance. Fund families will find it cost-effective to implement such incentive mechanisms only when investors are sophisticated in assessing manager skill. The findings help to explain why a large percentage of fund families outsource their funds to advisory firms.

Overpayment to directors and future operating performance

ABSTRACTThis article derives the predicted excess compensation from corporate governance variables and explores the impact of director excessive compensation on future operating performance. By using the data in Taiwan as the research samples, this article finds that overpayment to directors will decrease the future operating performance of the firm. The results are consistent, regardless of analysing in the form of fixed compensation or performance-based compensation.

Do Players Perform for Pay? An Empirical Examination via NFL Players' Compensation Contracts

How to properly compensate and incentivize players is an important question in the realm of professional sports, and more broadly, is a central question in contract design. With the increasing use of performance-based compensation packages and tax law favoring such compensation design, a natural question arises as to whether workers do indeed perform for pay. We examine this question in a setting that is not fraught with the typical measurement and identification problems found in many pay-performance settings. Specifically, we examine changes in a NFL player’s Win Probability Added (WPA) and Expected Points Added (EPA) in response to his compensation-contract design. Overall, our paper provides evidence that players do indeed perform for (properly designed) pay, and has important implications for future work on compensation and incentive-based contract design.

The Impact of Performance-based Compensation on the Amoeba Management System

The Impact of Performance-based Compensation on the Amoeba Management System

The Role of Shared Leadership and Work Environment in Strengthening the Influence of Compensation on Nurse's Performance

1. Introduction Selecting a job is not merely based on the compensation that people will get, but sometimes there is something beyond it. As for some nurses, the basic reason of being the nurses might be due to the short distance between their home and the work place. It means it is not because they will get more salary. This phenomenon is different from the most common reality that more salary people get, more performance they will show. However, this assumption needs to be examined further by conducting a research to disclose whether the compensation influences the nurse's performance. The results of previous empirical studies show the inconsistency results of the influence of the compensation on the nurse's performance. Some researchers found that the compensation positively influence the nurse's performance, whereas others show that there is no influence of the compensation on the nurse's performance. These inconsistency results lead to a further research which adds the work environment variable and shared leadership as the moderating variable. Work environment and shared leadership are selected as the solution to overcome the inconsistency result of the previous studies. In addition, the work environment and shared leadership are still rarely used as the moderating variable of the compensation and performance. Therefore, this study aims at disclosing whether work environment strengthen the influence of compensation on the performance, and also finding out whether the shared indicator strengthen the employee's performance. 2. Literature, Hypotheses, and Framework 2.1. Compensation and Nurse's Performance There are four keys that make the employee compensation management success which are: (1) providing health quality maintenance; (2) maintaining work productivity by keeping the employees working on-track, (3) giving more priority on employee's satisfaction, (4) controlling the cost (Guzik et al., 1999). According to Gupta and Shaw (2013) that compensation system is important and interesting. Nevertheless, there are some debates on the study concerning employee's compensation including: (1) compensation becomes one of reasons of the crucial effects on human capital's quality and effectiveness; (2) based on psychological point of view, compensation has an effect on the employee's behaviour and attitude; (3) some of compensation's decision are not expensive. The development on the compensation study runs dynamically. The influence of the compensation variable, both non-executive and executive, on the performance has positive effects as stated by Feng et al. (2015). Compensation, both performance-based compensation, compensation based on individual performance, and a strong team identity, positively affects the performance (Blazovich, 2013). Shin-Rong et al. (2012) who state that the compensation made by director economically has a positive effect on the market performance and company support this finding. A study conducted by Vandersteegen et al. (2014) on 34 OECD developed countries, which has become the members of OECD in between 1970-2001 shows that the compensation decrease the maintenance cost by 0.11%. Meanwhile, another research concerning the influence of the compensation on employee's performance states that the quality of the compensation is influenced by: (1) the quality of the people who apply, (2) the quality of those hired, (3) the likelihood of job acceptance, (4) the motivation and performance level of the workforce, and (5) the quality of who stays with the company (Gupta and Shaw, 2014). Brown et al. (2016) state that We further find that the relation between task difficulty and compensation plan selection is fully mediated by participants' assessments of their relative skill. This research used the web-based software in the computer library by involving 148 undergraduate students from public university. Whereas, based on Onishi's research (2013), he states that the compensation in form of revenue-based compensation plans can increase the patent/copyright numbers. …

Identifying the determinants for attractiveness of interdisciplinary forms of care from the perspective of health care professionals

Since the collaboration between care givers occurs on a voluntary basis in Austria, the development of integrated care initiatives relies primarily on the engagement and commitment of health care professionals. Motivation theory suggests addressing needs and individual goals in order to achieve higher commitment. If health care professionals believe that their personal goals can better be achieved in integrated care models we can expect a growth in interdisciplinary care provision. The aim of the study is to identify motivational factors and determinants of attractiveness in interdisciplinary forms of care. The development of the questionnaire was based on motivational theory, especially Herzberg`s Two-Factor Theory, Mc Clellands Need Achievement Theory, Vroom`s VIE Theory and previous studies on motivational factors in health care settings. In the first part information was collected on the respondent`s professional background, their working experience, age, work-life attitudes and general preferences for interdisciplinary forms of care. The second part addressed motivational factors and determinants of attractiveness of interdisciplinary forms of care. The sample included practicing physicians, nurses and other non-physician health care professions. Statistical methods included frequency distributions, explanatory factor analysis, t-test and regression analysis. The main sources for motivation are the work itself (interesting and meaningful work, working independently and with responsibility) and recognition and feedback. At their current workplace expectations concerning security and social relationships are met to a high degree whereas expectations concerning recognition and feedback are met to a low degree. Respondents were divided on the expected consequences of entering integrated care networks. Nurses and medical-technical staff expected more challenging work and stated that their interests could be better pursued in integrated forms of care. Doctors expected a reduction in autonomy and stated that their interests could not be better pursued in integrated forms of care. Several suggestions for designing attractive workplaces can be drawn from the findings of the survey. Results suggest that health care professionals are highly motivated by the work itself and by recognition and feedback. In order to increase attractiveness the following components have to be considered: working independently and with responsibility, interesting, meaningful and challenging work, performance-based compensation, feedback on performance, career opportunities and job security. A better understanding of motivational factors and attitudes towards interdisciplinary forms of care provides the basis for designing care in a way to meet the needs and interests of all groups involved. Paying attention to the individual goals of the care providers involved can facilitate the dissemination of interdisciplinary forms of care. The results of the study suggest that two factors seem to be crucial in obtaining the commitment of health care professionals: the dedication to the work itself and the desire to remain independent and autonomous. Respondents were students enrolled in postgraduate master programs. Their common interest in continuous education and learning could induce similarities in working motives and attitudes. Further studies, particularly ones using qualitative methods, should concentrate on the process of the formation of work values and attitudes.

Towards Transformative REDD Strategy: Lessons from Safeguards Development and Planning in the Philippines

In 2010, government agencies and civil society organizations jointly crafted the Philippine National REDD Strategy (PNRPS) to facilitate the implementation of REDD activities over a 10-year horizon. This period included a 3-5 year Readiness Phase, before gradually scaling up to full Engagement (PNRPS, 2010, iv). Since then, government and civil society organizations have received grants and technical assistance to carry out REDD readiness activities at the national and local levels. These have focused on capacity building, forestland use planning and policy development, all geared toward creating an environment favorable for eventual full implementation of REDD, including the receipt of performance-based compensation and realizing the potential social and environmental co-benefits. Work in this regard has included efforts to align national and local policy and governance with the social and environmental safeguards decided on at the 16th Conference of the Parties to the United Nations Framework Convention on Climate Change. This paper examines in particular, the initiative to develop a National Safeguards Framework and set of Guidelines for REDD safeguards using the REDD Safeguards Spectrum proposed by Arhin in 2014. The experiences of the province of Albay will be cited as a case study. Finally, recommendations will be proposed for moving forward with REDD in the Philippines through national-level action.

A failed marriage between standardization and incentivism: Divergent perspectives on the aims of performance-based compensation in Shanghai, China

The Chinese province of Shanghai has gained international recognition as a high performing education system with strong teaching and learning outcomes. One accountability mechanism in Shanghai’s education reform strategy is statewide performance-based compensation (PBC), also known as performance- or merit pay. Providing a first time account of PBC in the Shanghai context, this study investigated variance in stated and perceived aims of this policy instrument. To explore this variance, the study drew on data from national, state, and school level policy documents, and data from interviews with 20 teachers and the principal in a high performing elementary school. The analysis revealed that PBC was intended to improve teaching quality. However, the teachers’ perceived merit pay was meant to increase teacher enthusiasm, job satisfaction, and participation in teacher and student development activities. Importantly, the teachers perceived these aims as tangential from instructional improvement goals. Based on these findings, I argue that this particular PBC policy, as a manifestation of the marriage of standardization and incentivism, is unable to fulfill the promises of this marriage – to link incentives with homogenous, uniform metrics associated with a generic and shared notion of teaching quality.

Do CMO Incentives Matter? An Empirical Investigation of CMO Compensation and Its Impact on Firm Performance

Despite growing interest in various facets of the position of chief marketing officer (CMO), there is very little research on CMO compensation. Accordingly, we set out to investigate the determinants of CMO compensation and its effect on firm performance. Employing the lens of agency theory, we hypothesize that the CMO’s marginal productivity will positively impact the amount of total compensation as well as the extent of performance-based compensation in the CMO’s compensation contract. Moreover, we hypothesize that deviations in contracting elements from predicted levels will adversely impact firm performance. Analyzing a sample of 9,230 firm-year observations over the period 1992–2013, we find that CMOs employed at firms with high advertising and R&D intensity, and operating in competitive product markets, command larger amounts of total compensation. Moreover, a greater proportion of their compensation is market based, with heightened sensitivity to movements in the firm’s stock price. We also find that deviations in CMO compensation elements have an adverse impact on operating performance (return on assets (ROA)), earnings surprises, and stock returns. Specifically, a 10% deviation in market-based compensation from predicted levels reduces ROA by 0.28%, dampens earnings surprises by 0.19%, and degrades annualized stock returns by 2.4%. This paper was accepted by Eric Anderson, marketing.

Rank and File Equity Compensation and Earnings Management: Economic Incentives and the Robin Hood Effect

Executive compensation is often linked to firm performance with equity-based compensation. One consequence of executives’ equity compensation is that it can create incentives for earnings management. Rank and file employees are also granted equity compensation and there are at least two reasons to suspect that rank and file equity compensation will influence earnings management. First, a substantial literature provides evidence that performance-based compensation creates earnings management incentives (economic incentive effect). Second, psychology literature suggests that individuals are better able to justify dubious behavior when the behavior can be rationalized as benefitting other, less-fortunate individuals. Consequently, firms that offer rank and file plans may unwittingly provide executives with a built-in justification to manage earnings (the Robin-Hood effect). Our results provide evidence that increases in rank and file employees’ equity-based compensation are associated with increases in earnings management. Cross-sectional tests are more consistent with economic incentives accounting for our results rather than the Robin Hood effect.