Contemporaneous and Forward-Looking Measures: Implications for Incentive Structure for Long-Horizon Employees

35 Pages Posted: 1 Aug 2008 Last revised: 23 Jan 2009

See all articles by Dipankar Ghosh

Dipankar Ghosh

University of Oklahoma

Anne Wu

National Chengchi University (Taipei)

Ling-Chu Lee

National Pingtung Institute of Commerce

Date Written: August 1, 2008

Abstract

Using car dealership data, we examine the relevance of forward-looking (FL) and contemporaneous (CO) measures for pay-for-performance incentives (bonus, annual raise, promotions) for long-horizon employees. Economic models suggest that while contracts with FL performance measures mitigates the shortsighted efforts of employees whose employment horizons are not aligned with the firm's profitability horizons, these measures have no influence on effort as employment horizons approach the firm's long-term profitability horizon. We predict and show for long-horizon employees that: their incentive contracts weights FL measures significantly more and are assigned greater weights than CO measures; and, compared to CO measures, the weights on FL measures increase as the time horizon of the incentives increase (bonus to raise to promotion).

JEL Classification: J33, M40, M46

Suggested Citation

Ghosh, Dipankar and Wu, Anne and Lee, Ling-Chu, Contemporaneous and Forward-Looking Measures: Implications for Incentive Structure for Long-Horizon Employees (August 1, 2008). AAA 2009 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1194143 or http://dx.doi.org/10.2139/ssrn.1194143

Dipankar Ghosh

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5777 (Phone)
405-325-7348 (Fax)

Anne Wu (Contact Author)

National Chengchi University (Taipei) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Ling-Chu Lee

National Pingtung Institute of Commerce ( email )

51 Min-Sheng E. Road
Pingtung, Taiwan 900
China

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