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1 – 10 of over 7000Syed Munawar Shah and Mariani Abdul-Majid
The purpose of this paper is to examine whether reputation element affects the decision relative performance of trust, bonus and incentive contracts using social laboratory…
Abstract
Purpose
The purpose of this paper is to examine whether reputation element affects the decision relative performance of trust, bonus and incentive contracts using social laboratory experiments.
Design/methodology/approach
The study conducts the following lab experiments bonus–incentive treatment without reputation, bonus–incentive treatment with reputation and trust–incentive treatment with reputation.
Findings
The study finds that the reputation and fairness concerns, in contrast to self-interest, may have a decisive impact on the actual and optimal choices in the reciprocity-based contracts. The principal pays higher salaries in the bonus contract as compared to an incentive contract.
Originality/value
The study contributes to the behavioral economic literature in the following dimensions. The existing literature on lab experiments considers a bonus contract as better than the debt contract; however, it does not consider the trust contract better than the debt contract.
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Joshua Graff Zivin, Lisa B. Kahn and Matthew Neidell
In this chapter, we examine the impact of pay-for-performance incentives on learning-by-doing. We exploit personnel data on fruit pickers paid under two distinct compensation…
Abstract
In this chapter, we examine the impact of pay-for-performance incentives on learning-by-doing. We exploit personnel data on fruit pickers paid under two distinct compensation contracts: a standard piece rate plan and one with an extra one-time bonus tied to output. Under the latter, we observe bunching of performance just above the bonus threshold, suggesting workers distort their behavior in response to the discrete bonus. Such bunching behavior increases as workers gain experience. At the same time, the bonus contract induces considerable learning-by-doing for workers throughout the productivity distribution who presumably hope to one day hit the target, and these improvements significantly outweigh the losses to the firm from the bunching. In contrast, under the standard piece rate contract, we find minimal evidence of bunching and only small performance improvements at the bottom of the productivity distribution. Our results suggest that contract design can help foster learning on the job, underscoring the importance of dynamic considerations in principle-agent models.
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Following the optimal contracting hypothesis, this study investigates the issue of whether the board of director's ex ante choice to incorporate individual performance evaluation…
Abstract
Following the optimal contracting hypothesis, this study investigates the issue of whether the board of director's ex ante choice to incorporate individual performance evaluation (IPE) measures into the CEO bonus plan rewards managerial decisions not reflected in measures of the firm's current financial performance. Empirical results provide evidence that the use of IPE in the CEO bonus plan is an increasing function of the proportion of outsider directors on the board and a decreasing function of the informativeness of financial performance measures. This study also demonstrates how the use of IPE in incentive contracting can explain CEO cash compensation that is not explained by the firm's current performance and governance variables. Finally, the CEO incentive cash compensation not explained by observable performance measures or governance structure is positively associated with firm future performance one year after its award. Overall, results support the optimal contracting hypothesis. IPE appears to be used to increase the informativeness of CEO actions and determine the level of current CEO cash incentive compensation.
Mark A. Covaleski, Mark W. Dirsmith and Jane Weiss
Purpose – The negotiated order branch of symbolic interaction used to examine the process by which welfare regulations were dramatically changed in which the forty-year old AFDC…
Abstract
Purpose – The negotiated order branch of symbolic interaction used to examine the process by which welfare regulations were dramatically changed in which the forty-year old AFDC (Aid to Families with Dependent Children) was abandoned, and a new W-2 (Welfare Works) welfare reform effort was developed and socially negotiated with the Federal government and in the State of Wisconsin. We probe interactions within the mesodomain of four levels of actors: the Federal government; State-level government in both the executive and legislative branches; county-level government; and public and private welfare service delivery agencies.
Method – Qualitative, naturalistic, ten-year field study entailing interviews and archival analyses.
Findings – The reform effort involved the mutual constitution of the W-2 social structure and the social interactions that surrounded it through such strategies as negotiation, conflict, manipulation, coercion, exchange, bargaining, collusion, power brokering, and rhetoric, which were all circumscribed by and interpenetrated with the predecessor AFDC rule system. In turn, the welfare budget was reduced from $652m to $257m. We observed that the macro structure of welfare shaped the micro social actions of a variety of actors, and that micro social action by institutional entrepreneurs reconstituted structure of welfare policy in what proved to be a moving matrix.
Research implications – Implications were directed at extending and refining the negotiated order perspective.
Social implications – Given that the number of welfare recipients was reduced from 300,000 to 10,000, their fate in a weak economy was explored.
Originality – Chapter extends symbolic interaction concepts to examine a contested social domain.
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The aim of this paper is to examine how the real estate owner (decision maker) can ensure that the preferred tasks are prioritised. In particular, the incentives to ensure…
Abstract
Purpose
The aim of this paper is to examine how the real estate owner (decision maker) can ensure that the preferred tasks are prioritised. In particular, the incentives to ensure motivation to perform to accomplish the strategic goals of the decision maker are investigated.
Design/methodology/approach
This research is based on an interview study of 19 firm representatives, 6 decision makers and 13 management representatives, all from the Swedish commercial real estate sector.
Findings
The study concludes that the real estate management organisation in the outsourced management setting is governed by the contract, in detail constituting work tasks, and in the in-house management setting, there is freedom with responsibilities instead of regulations.
Research limitations/implications
The research in this paper is limited to Swedish commercial real estate sector.
Practical implications
The insight in the paper regarding how decision makers create incentives for the real estate management organisation in the different organisational settings can provide inspiration to design incentives for effort.
Originality/value
It provides an insight regarding how the industry, depending on organisation setting, prioritise different work tasks and how incentives are created to enable effort.
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This paper explores the relationship between fairness in contracting and the creation of budgetary slack. A laboratory experiment was performed in which privately informed…
Abstract
This paper explores the relationship between fairness in contracting and the creation of budgetary slack. A laboratory experiment was performed in which privately informed subjects were compensated under either a truth-inducing or slack-inducing incentive contract. Contracting processes were either fair or unfair as defined by procedural justice theory (Leventhal, 1980; Lind & Tyler, 1988). Under the slack-inducing contract, subjects exposed to the fair contracting process created significantly less slack than subjects exposed to the unfair contracting process. Slack created by subjects compensated under the truth-inducing contract was low and insensitive to the fairness or unfairness of the contracting process employed.
The purpose of this paper is to identify factors on property management level for analysing incentives for an effective property management in an outsourced setting.
Abstract
Purpose
The purpose of this paper is to identify factors on property management level for analysing incentives for an effective property management in an outsourced setting.
Design/methodology/approach
This research is based on an interview study of a set of three real estate-owning companies and their contracted facility management companies’ property management teams.
Findings
The study concludes that the property manager within the facility management company is highly controlled by the contract between the real estate owner and the facility management company. However, this contract does risk the individual property manager to prioritise the wrong work tasks as she/he has to know exactly what to prioritise in each contract and consider in whose interest she/he performs each task, the real estate owner, her/him employer or the tenants.
Research limitations/implications
The research in this paper is limited to Swedish commercial real estate sector.
Practical implications
The insight in the paper is regarding how real estate owners create incentives for the facility management companies’ property management organisation and how that are perceived by the individual property manager.
Originality/value
It provides an insight regarding how the commercial real estate industry prioritises different work tasks and how incentives are created to enable effort.
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Forensic accounting theory is an explanation of why and how the choice of methods or techniques used to detect creative accounting or manipulations in financial and non-financial…
Abstract
Forensic accounting theory is an explanation of why and how the choice of methods or techniques used to detect creative accounting or manipulations in financial and non-financial reporting, and the outcome of using such methods or techniques, depends on the accounting and non-accounting decisions taken into consideration by the forensic accountant or investigator. This theory is useful in stimulating meaningful discussions in the literature. This theory is useful to both practitioners and academics, and the resulting contributions to accounting theory and forensic science are useful to the problem-solving process in the global financial reporting agenda. The chapter discusses forensic accounting theory under a set of hypotheses for forensic investigation.
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Hassan R. HassabElnaby, Emad Mohammad and Amal A. Said
We examine the earnings management implications of using nonfinancial performance measures (NFPM) in executive compensation contracts. We argue and test that when a manager's…
Abstract
We examine the earnings management implications of using nonfinancial performance measures (NFPM) in executive compensation contracts. We argue and test that when a manager's compensation is based on financial and NFPM, he/she has less incentive to manipulate earnings to maximize compensation. Using panel data covering the period 1992–2005, we compare earnings management behavior for a sample of firms that used both financial and nonfinancial measures to a matched sample of firms that based their performance measurement solely on financial measures. The results are mainly consistent with a reduction in earnings management behavior for those firms that rely on NFPM in their compensation contracts.
There is growing scholarly interest in the use of penalty in employment contracts which reduce employees' pay if the employee's performance does not meet a pre-specified…
Abstract
Purpose
There is growing scholarly interest in the use of penalty in employment contracts which reduce employees' pay if the employee's performance does not meet a pre-specified performance threshold. Prior accounting research has focused exclusively on the effect of penalty on employee performance. In this study, the authors extend earlier research by examining how penalty affects the employers' wage offers. Prior research suggests that employers' generous wage offers in employment contracts are normally translated as trust by employees who in turn reciprocate with higher effort. The authors present a theory that predicts penalty reduces employers' wage offers. Then, the authors propose unrestricted communication between employers and employees as a potential moderator for the negative effect of penalty on trust and reciprocity.
Design/methodology/approach
The authors implement a controlled lab experiment with a 2 × 3 experimental design (Penalty: Present and Absent; and Communication: None, One-Way and Two-Way).
Findings
The authors develop their predictions by utilizing insights from motivational-crowding and organizational communication theories. The authors hypothesize and find evidence that employers' ability to penalize employees can reduce employers' motivation to offer generous wages. As a result, reduced trust demotivates employees to provide high effort. However, the authors find that a two-way communication moderates the negative effect of penalties by restoring trust, thereby, increasing reciprocity. Finally, the authors find evidence that relationship-oriented messages explain the moderating effect of communication.
Research limitations/implications
This study is subject to limitations inherent in all experimental studies. The decisions in the study experiment are less complex than those found in practice. Moreover, there are significantly higher costs and potential benefits to shirk on effort in practice. The authors encourage future research on other organizational features that would influence the generalizability of their theory and results. Nonetheless, this study makes an important contribution to the literature on trust, reciprocity, gift-exchange contracts, managerial controls and communication.
Practical implications
This paper has several important implications for theory and practice. The authors show that the presence of penalty may not automatically result in increasing employees' effort level, contrary to traditional economic theory predictions. This effect is driven mainly by the crowding out effect of a penalty on employers' desire to signal trust. Therefore, the presence of an open communication channel may become an important tool to reverse the psychological effect of reduced trust when penalty is present. Therefore, the study's findings contribute to the trust–reciprocity literature on how management control system influences employers' and employees' behavior. These findings are especially germane given the trend in the workplace toward establishing open communication at different levels within the firm hierarchy. The study also contributes to the literature on trust–reciprocity as critical informal controls and social norms in accounting practices (Bicchieri, 2006; Stevens, 2019), shedding light on how firms may influence employees' reciprocity in management control practices and induce them to act in line with the firm's objectives by opening communication channels.
Originality/value
Prior accounting research document that penalty in employment contracts increases employee performance due to loss aversion. The study, however, demonstrates that the positive effect of penalty is not sustained in a gift-exchange contract. Specifically, the study's experimental results provide evidence that the availability of penalties can psychologically change the way employers perceive their decisions on offering generous wages (i.e. trust) and consequently reduce employees' reciprocation of high effort levels. Yet, the authors propose a two-way communication as a restorative mechanism for the lost trust. Implications for theory and practice are discussed.
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