Skip navigation
Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27483
Title: The Advantages of Using Earnings for Compensation: Matching Delivered Performance
Authors: Barclay, Michael J.
Gode, Dan
Kothari, S. P.
Issue Date: Jun-2000
Series/Report no.: Dhananjay (Dan) K. Gode-06
Abstract: We show that the greater the extent to which a performance measure matches delivered performance, the simpler and more robust are the compensation plans based on it. In some settings stock price changes match delivered performance poorly because they anticipate it. This introduces three problems with price-based plans relative to an earnings-based plan. First, the price-based plans become complex because they require knowing the extent to which prices anticipate the future. Second, price-based plans are less robust to unforeseen events. Third, price-based plans require period-by-period changes in pay-for-performance relationship even when the underlying production function remains unchanged. Earnings-based plans are used in these settings if earnings better match delivered performance.
URI: http://hdl.handle.net/2451/27483
Appears in Collections:Accounting Working Papers

Files in This Item:
File Description SizeFormat 
SSRN-id238075.pdf101.83 kBAdobe PDFView/Open


Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.