Performance Targets and Ex Post Incentive Plan Adjustments
成果类型：
Article
署名作者：
Jeong-Hoon Hyun; Matejka, Michal; Oh, Peter (Seung Hwan); Ahn, Tae Sik
署名单位：
NEOMA Business School; Arizona State University; Arizona State University-Tempe; McGill University; Seoul National University (SNU)
刊物名称：
CONTEMPORARY ACCOUNTING RESEARCH
ISSN/ISSBN：
0823-9150
DOI：
10.1111/1911-3846.12754
发表日期：
2022
页码：
863-892
关键词：
subjectivity
DISCRETION
Bonuses
CHOICE
determinants
favoritism
difficulty
diversity
IMPACT
tests
摘要：
Performance evaluations are typically based on a formula that specifies in advance all performance measures, their relative incentive weights, and targets to be met. However, beginning-of-year performance targets can become outdated due to unforeseen events that call for ex post adjustments to formula-based incentive plans to restore incentives. We discuss three types of ex post incentive plan adjustments-end-of-year subjective performance evaluation, changes in next-year relative incentive weights, and changes in next-year performance targets-and empirically examine the extent to which they are used to discourage failure to meet a target by a wide margin. Specifically, we use 2004-2015 data on formula-based bonus plans, subjective performance evaluations, and performance in Korean state-owned enterprises. Consistent with our predictions, we find that very low performance relative to target is associated with (i) low subjective evaluations and (ii) an increase in next-year incentive weights, conditions that render areas with poor performance more important in future evaluations. These findings are more pronounced on performance dimensions of high importance and less pronounced when very low performance is due to an adverse uncontrollable shock. Finally, we find evidence that ex post incentive plan adjustments are associated with future performance improvements. Combined, our findings suggest that ex post incentive plan adjustments can be used to strengthen incentives when performance targets get outdated.