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Goal Setting in the Principal-Agent Model : Weak Incentives for Strong Performance

Author

Listed:
  • Brice Corgnet

    (EM - EMLyon Business School, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique)

  • Joaquín Gómez-Miñambres

    (Lafayette College [Easton], Chapman University)

  • Roberto Hernán-González

    (BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC))

Abstract

We study a principal–agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents' performance. Agents' performance is higher in the presence of goal setting despite weaker incentives. We develop a principal–agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. The pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.

Suggested Citation

  • Brice Corgnet & Joaquín Gómez-Miñambres & Roberto Hernán-González, 2018. "Goal Setting in the Principal-Agent Model : Weak Incentives for Strong Performance," Post-Print hal-02312063, HAL.
    • Handle: RePEc:hal:journl:hal-02312063
    DOI: 10.1016/j.geb.2017.12.017
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    Citations

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    Cited by:

    1. Bao, Zhengyang & Leibbrandt, Andreas, 2024. "Tournaments with safeguards: A blessing or a curse for women?," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 292-306.
    2. James Fan & Joaquín Gómez-Miñambres, 2020. "Nonbinding Goals in Teams: A Real Effort Coordination Experiment," Manufacturing & Service Operations Management, INFORMS, vol. 22(5), pages 1026-1044, September.
    3. Aleksandr Alekseev, 2022. "Give me a challenge or give me a raise," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 170-202, February.
    4. Victor Gonzalez-Jimenez & Patricio S. Dalton & Charles N. Noussair, 2019. "The Dark Side of Monetary Bonuses: Theory and Experimental Evidence," Vienna Economics Papers vie1909, University of Vienna, Department of Economics.
    5. Luc Meunier & Sima Ohadi, 2023. "When are two portfolios better than one? A prospect theory approach," Theory and Decision, Springer, vol. 94(3), pages 503-538, April.
    6. Buckley, P. & Roussillon, B. & Teyssier, S., 2021. "Gain and loss framing to encourage effort provision: An experiment," Working Papers 2021-02, Grenoble Applied Economics Laboratory (GAEL).
    7. Guichen Gao & Xinxin Han & Li Ning & Hing-Fung Ting & Yong Zhang, 2022. "Principal–agent problem under the linear contract," Journal of Combinatorial Optimization, Springer, vol. 44(4), pages 2286-2301, November.
    8. Matthew Cedergren & Valerie Li, 2024. "Round number reference points and irregular patterns in reported gross margins," Review of Accounting Studies, Springer, vol. 29(4), pages 3293-3327, December.
    9. Hangbo Liu & Xuemeng Guo & Dachen Sheng, 2024. "The Impact of Heterogeneous Market Sentiments on Corporate Risk-Taking and Governance," Mathematics, MDPI, vol. 12(22), pages 1-21, November.
    10. Koch, Alexander K. & Nafziger, Julia, 2020. "Motivational goal bracketing: An experiment," Journal of Economic Theory, Elsevier, vol. 185(C).
    11. Víctor González-Jiménez, 2021. "Incentive contracts when agents distort probabilities," Vienna Economics Papers vie2101, University of Vienna, Department of Economics.
    12. Argyro Avgoustaki & Almudena Cañibano, 2020. "Motivational Drivers of Extensive Work Effort: Are Long Hours Always Detrimental to Well‐being?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 59(3), pages 355-398, July.
    13. Veronica Rattini, 2023. "Worker autonomy and performance: Evidence from a real‐effort experiment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 300-327, April.
    14. Nafziger, Julia & Kaiser, Jonas P. & Koch, Alexander K, 2021. "Self-Set Goals Are Effective Self-Regulation Tools -- Despite Goal Revision," CEPR Discussion Papers 15716, C.E.P.R. Discussion Papers.
    15. James Fan & Joaquín Gómez‐Miñambres & Samuel Smithers, 2020. "Make it too difficult, and I'll give up; let me succeed, and I'll excel: The interaction between assigned and personal goals," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(6), pages 964-975, September.
    16. Víctor González-Jiménez, 2021. "Incentive contracts when agents distort probabilities," Vienna Economics Papers 2101, University of Vienna, Department of Economics.
    17. Cettolin, Elena & Cole, Kym & Dalton, Patricio, 2024. "Improving workers’ performance in small firms: A randomized experiment on goal setting in Ghana," Other publications TiSEM d9fa5424-4f53-4e02-8cb2-c, Tilburg University, School of Economics and Management.
    18. Sebastian Fest & Ola Kvaløy & Petra Nieken & Anja Schöttner, 2019. "Motivation and incentives in an online labor market," CESifo Working Paper Series 7526, CESifo.
    19. Cettolin, Elena & Cole, Kym & Dalton, Patricio, 2022. "Improving Workers’ Performance in Small Firms : A Randomized Experiment on Goal Setting in Ghana," Other publications TiSEM d0f494f0-87ed-4ef2-8472-6, Tilburg University, School of Economics and Management.
    20. Robert Dibie & Raphael Dibie, 2020. "Analysis of the Determinants of Tax Policy Compliance in Nigeria," Journal of Public Administration and Governance, Macrothink Institute, vol. 10(2), pages 3462-3462, December.
    21. Zhou, Danping & Zhang, Pan & Guo, Junhua, 2024. "Is one plus one greater than two? How Double target incentives stimulate green growth in China," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 340-350.
    22. Victor Gonzalez-Jimenez & Patricio S. Dalton & Charles N. Noussair, 2019. "The Dark Side of Monetary Bonuses: Theory and Experimental Evidence," Vienna Economics Papers 1909, University of Vienna, Department of Economics.

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