Abstract

http://ssrn.com/abstract=2133004
 


 



The Effect of Target Difficulty and Incentives on Target Completion: The Case of Reducing Carbon Emissions


Ioannis Ioannou


London Business School

Shelley Xin Li


Harvard Business School

George Serafeim


Harvard University - Harvard Business School

July 20, 2014


Abstract:     
Setting targets and providing monetary incentives are two widely used motivating tools to achieve desirable organizational outcomes. We focus on reduction of carbon emissions as a setting in which to examine how target difficulty and monetary incentives provided to managers affect the degree of target completion. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) that yields a sample of 1,127 firms from around the world. We find that firms setting more difficult targets or providing monetary incentives are able to complete a higher percentage of the target. The effect of target difficulty on target completion is nonlinear: above a certain level, stretching the target decreases the percentage of target completion. Moreover, we find that bundling difficult targets together with monetary incentives negatively affects the degree of target completion, suggesting that these two motivating tools act as substitutes in our setting. Finally, we provide evidence that both target difficulty and monetary incentives motivate managers to a) undertake more carbon reducing projects that generate more carbon savings, and b) invest more money in such projects, without increasing the average payback period of the project portfolio.

Number of Pages in PDF File: 47

Keywords: target setting, incentives, performance, environment, carbon emissions, climate change

JEL Classification: M4, M5, M1

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Date posted: August 21, 2012 ; Last revised: November 23, 2014

Suggested Citation

Ioannou, Ioannis and Li, Shelley Xin and Serafeim, George, The Effect of Target Difficulty and Incentives on Target Completion: The Case of Reducing Carbon Emissions (July 20, 2014). Available at SSRN: http://ssrn.com/abstract=2133004 or http://dx.doi.org/10.2139/ssrn.2133004

Contact Information

Ioannis Ioannou
London Business School ( email )
Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
02070008748 (Phone)
HOME PAGE: http://www.london.edu
Xin Li (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
George Serafeim
Harvard University - Harvard Business School ( email )
381 Morgan Hall
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705
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