Determinants of Performance Measure Choices in Worker Incentive Plans

48 Pages Posted: 15 Sep 2001

See all articles by Christopher D. Ittner

Christopher D. Ittner

University of Pennsylvania - Accounting Department

David F. Larcker

Stanford University - Graduate School of Business

Date Written: August 2001

Abstract

This study examines some of the factors influencing the choice of performance measures in worker (non-management) incentive plans. Our sample consists of 607 incentive plans covering non-management employees and having a clear, pre-announced performance-payout link. We find that informativeness issues such as those addressed in economic theories are key factors in the selection of performance measures for worker incentive plans. However, we also find that other reasons for adopting the plan (i.e., promoting organizational change, improving the link between pay and firm performance, and upgrading the workforce) also play a role in performance measure choices, as do union representation and management participation in plan design. Moreover, the factors influencing the use of specific measures vary, suggesting that the aggregate performance measure classifications commonly used in compensation research, such as the comparison of financial versus non-financial metrics, provide somewhat misleading inferences regarding performance measurement choices.

Keywords: performance measures, compensation plans, non-management employees

JEL Classification: D2, J3, L2, M4

Suggested Citation

Ittner, Christopher D. and Larcker, David F., Determinants of Performance Measure Choices in Worker Incentive Plans (August 2001). Available at SSRN: https://ssrn.com/abstract=283206 or http://dx.doi.org/10.2139/ssrn.283206

Christopher D. Ittner (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7786 (Phone)
215-573-2054 (Fax)

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

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