An Empirical Analysis of a Relative Performance-Based Incentive Plan: Evidence from a Postal Service

50 Pages Posted: 14 Jun 2004

See all articles by Ella Mae Matsumura

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems

Jae Yong Shin

Seoul National University - College of Business Administration

Date Written: June 9, 2004

Abstract

Using 1997-1999 annual performance evaluation data of 214 postal stores in Korea, we find that introduction of a relative performance evaluation (RPE)-based incentive plan is positively associated with financial performance and that under the new incentive plan, the degree of common uncertainty is positively associated with store profitability. We also find evidence that the incentive effect of the RPE-based plan is mitigated in stores at which the level of dysfunctional behavior is likely to be high. Finally, we find that the net benefits of introducing the RPE contract may be highly conditional on the degree of common uncertainty, which appears to be inversely related to the likelihood of dysfunctional behavior attributable to the RPE-based contract.

Keywords: Relative performance evaluation, Incentive plans, Dysfunctional behavior, Common uncertainty

JEL Classification: M12, M41, J33

Suggested Citation

Matsumura, Ella Mae and Shin, Jae Yong, An Empirical Analysis of a Relative Performance-Based Incentive Plan: Evidence from a Postal Service (June 9, 2004). Available at SSRN: https://ssrn.com/abstract=556153 or http://dx.doi.org/10.2139/ssrn.556153

Ella Mae Matsumura (Contact Author)

University of Wisconsin-Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-9731 (Phone)
608-265-6040 (Fax)

Jae Yong Shin

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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