An Empirical Analysis of an Incentive Plan with Relative Performance Measures: Evidence from a Postal Service

Posted: 31 Dec 2005

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

Abstract

Using 1997-1999 annual performance evaluation data of 214 postal stores in Korea, we find that financial performance improves following the implementation of an incentive plan that includes relative performance measures, and that under this incentive plan, the degree of common uncertainty is positively associated with store profitability. We also find evidence that the incentive effect of the plan is mitigated in stores at which the employees' perceived unfairness is likely to be high. Finally, we find that the net benefits of introducing the incentive plan may be conditional on the degree of common uncertainty, which appears to be inversely related to the perceived unfairness attributable to the introduction of the contract with relative performance measures.

Keywords: Relative performance measures, Incentive plan, Perceived unfairness, Degree of common uncertainty

JEL Classification: M12, M41, J31, J33

Suggested Citation

Matsumura, Ella Mae and Shin, Jae Yong, An Empirical Analysis of an Incentive Plan with Relative Performance Measures: Evidence from a Postal Service. Accounting Review, Forthcoming , Available at SSRN: https://ssrn.com/abstract=872472

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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