The (Non-)Use of New Information for Incentive Recalibration: Evidence from Sales Managers’ Intra-year Target Revisions

53 Pages Posted: 16 Aug 2015 Last revised: 16 Jan 2021

See all articles by Markus C. Arnold

Markus C. Arnold

University of Bern - Institute for Accounting

Martin Artz

University of Muenster - Accounting Center

Robert Grasser

University of South Carolina

Date Written: December 23, 2020

Abstract

We investigate whether and under which conditions top management uses or commits to not use new information when deciding about intra-year bonus target revisions, and how this use or non-use of information varies contingent on firms’ organizational design. First, we analyze whether firms’ use of new information for performance evaluation depends on the level of a manager’s incentive miscalibration that can be recalibrated with an intra-year target revision (i.e., benefits of using new information). Second, we explore whether higher degrees of delegated decision authority and intra-firm interdependencies increase firms’ costs of using new information, thereby increasing the cost of reacting to miscalibrated incentives. For a sample of sales executives, we find support for our hypotheses. Our paper contributes to literature streams highlighting the benefits of commitment in target setting and the relationship between organizational and incentive design.

Keywords: Bonus function; commitment; delegated decision authority; incentives; intra-firm interdependencies; sales executives; target deviation; target revision

JEL Classification: M41, M52

Suggested Citation

Arnold, Markus C. and Artz, Martin and Grasser, Robert, The (Non-)Use of New Information for Incentive Recalibration: Evidence from Sales Managers’ Intra-year Target Revisions (December 23, 2020). AAA 2016 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2644933 or http://dx.doi.org/10.2139/ssrn.2644933

Markus C. Arnold

University of Bern - Institute for Accounting ( email )

Engehaldenstr. 4
Bern, 3012
Switzerland

Martin Artz (Contact Author)

University of Muenster - Accounting Center ( email )

Universitätsstr. 14-16
Münster, 48143
Germany

Robert Grasser

University of South Carolina

1014 Greene St
Columbia, SC 29208
United States

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