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Performance Measurement and Incentive Plans

Author

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  • Kauhanen, Antti
  • Napari, Sami

Abstract

This paper explores performance measurement in incentive plans. Based on theory, we argue that differences in the nature of jobs between blue- and white-collar employees lead to differences in incentive systems. We find that performance measurement for white-collar workers is broader in terms of the performance measures, the organizational level of performance measurement and the time horizon. The intensity of incentives is also stronger for white-collar employees. All of these findings are consistent with theory.

Suggested Citation

  • Kauhanen, Antti & Napari, Sami, 2010. "Performance Measurement and Incentive Plans," Discussion Papers 1216, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:dpaper:1216
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    References listed on IDEAS

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    1. Asplund, Rita, 2007. "Finland: Decentralisation Tendencies within a Collective Wage Bargaining System," Discussion Papers 1077, The Research Institute of the Finnish Economy.
    2. HOLMSTROM, Bengt, 1979. "Moral hazard and observability," LIDAM Reprints CORE 379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    4. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    5. Fama, Eugene F, 1991. "Time, Salary, and Incentive Payoffs in Labor Contracts," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 25-44, January.
    6. Murphy, Kevin J., 2000. "Performance standards in incentive contracts," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 245-278, December.
    7. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    8. Gibbs, Michael & Merchant, Kenneth A. & Van der Stede, Wim A. & Vargus, Mark A., 2004. "Performance Measure Properties and Incentives," IZA Discussion Papers 1356, Institute of Labor Economics (IZA).
    9. Michael Raith, 2008. "Specific knowledge and performance measurement," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1059-1079, December.
    10. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kauhanen, Antti & Maczulskij, Terhi & Riukula, Krista, 2020. "Heterogeneous Impacts of the Decentralization of Collective Bargaining," IZA Discussion Papers 13867, Institute of Labor Economics (IZA).
    2. Baik, Bok & Evans, John H. & Kim, Kyonghee & Yanadori, Yoshio, 2016. "White collar incentives," Accounting, Organizations and Society, Elsevier, vol. 53(C), pages 34-49.
    3. Radi, Sherihan, 2020. "The Importance of the Existence of a Code of Ethics in a Workplace for Blue-Collar Workers," MPRA Paper 102189, University Library of Munich, Germany.
    4. Mirella Damiani & Fabrizio Pompei & Andrea Ricci, 2023. "Tax breaks for incentive pay, productivity and wages: Evidence from a reform in Italy," British Journal of Industrial Relations, London School of Economics, vol. 61(1), pages 188-213, March.
    5. Kato, Takao & Kauhanen, Antti & Salmi, Julia, 2013. "Empirical Evidence on the Dynamics of Incentive Plans," ETLA Working Papers 20, The Research Institute of the Finnish Economy.
    6. Kauhanen, Antti & Salmi, Julia & Torkki, Paulus, 2013. "Performance Measurement in Healthcare Incentive Plans," ETLA Working Papers 18, The Research Institute of the Finnish Economy.
    7. Kato, Takao & Kauhanen, Antti, 2013. "Performance Pay and Enterprise Productivity: The Details Matter," ETLA Working Papers 21, The Research Institute of the Finnish Economy.
    8. Jaren Haber, 2016. "Institutionalized Involvement: Teams and Stress in 1990s U.S. Steel," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(4), pages 632-661, October.
    9. Kato, Takao & Kauhanen, Antti & Kujansuu, Essi, 2013. "The Performance Effects of Individual and Group Incentives: A Case Study," ETLA Working Papers 19, The Research Institute of the Finnish Economy.
    10. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Sara Martinez-de-Morentin, 2017. "Performance Measurement and Incentive Intensity," Journal of Labor Research, Springer, vol. 38(4), pages 496-546, December.

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    More about this item

    Keywords

    incentive pay; performance measurement; risk versus distortion trade-off; agency theory;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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