Performance Pay, Internal Control, and Employee Misconduct

• 成果类型: Article; Early Access
• 署名作者: Kraekel, Matthias; Schoettner, Anja
• 署名单位: University of Bonn; Humboldt University of Berlin
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.04232
• 发表日期: 2025
• 关键词: Moral hazard; misconduct; INTERNAL CONTROL; performance pay

摘要

We examine a scenario in which an employee exerts productive effort to achieve a target but can also manipulate a performance measure to falsely claim target achievement. Although manipulation is detrimental from a societal perspective because of its negative externalities, the firm's shareholders may benefit from undetected manipulation. We analyze the firm's optimal implementation of internal control and its impact on the employee's productive effort and manipulative behavior. We demonstrate that a profitmaximizing firm primarily utilizes internal control to enhance the employee's performance pay contract; however, this does not necessarily reduce manipulation. We identify situations in which internal control reduces or aggravates manipulation and discuss factors that can complement internal control to combat manipulation.