Career-Risk Concerns, Information Effort, and Optimal Pay-for-Performance Sensitivity

2015 ◽  
Vol 27 (2) ◽  
pp. 165-195
Author(s):  
Qi Chen ◽  
Shane S. Dikolli ◽  
Wei Jiang
Keyword(s):  
Pay For Performance ◽  
Risk Measure ◽  
Substitution Effect ◽  
Career Concerns ◽  
Compensation Contracts ◽  
Task Setting ◽  
Performance Sensitivity ◽  
Trade Offs ◽  
Model Predictions ◽  
Underlying Risk

ABSTRACT Prior work has established that managers' concerns about the level of their future compensation (i.e., implicit incentives from career concerns) may substitute for explicit incentives in compensation contracts offered to the managers in a single-task setting (Gibbons and Murphy 1992). We show that the substitution effect can be weakened, and even reversed, when managers (1) exert effort, in addition to production effort, to influence information about their ability, and (2) are concerned about both the level and variability of their reputation. We also find that managerial concern about the variability of reputation can lead to the optimal pay-for-performance sensitivity increasing in the underlying risk measure, rather than decreasing in risk, as in standard incentive-risk trade-offs. We test these predictions using a large sample of CEO compensation outcomes. Results are consistent with our model predictions.

scholarly journals Value-based provider payment: towards a theoretically preferred design

2018 ◽  
Vol 15 (1) ◽  
pp. 94-112 ◽  
Author(s):  
Daniëlle Cattel ◽  
Frank Eijkenaar ◽  
Frederik T. Schut
Keyword(s):  
Health Care ◽  
Pay For Performance ◽  
Empirical Studies ◽  
Risk Profile ◽  
Provider Group ◽  
Payment Incentives ◽  
Trade Offs ◽  
Provider Payment ◽  
Group 2 ◽  
The Relationship

AbstractWorldwide, policymakers and purchasers are exploring innovative provider payment strategies promoting value in health care, known as value-based payments (VBP). What is meant by ‘value’, however, is often unclear and the relationship between value and the payment design is not explicated. This paper aims at: (1) identifying value dimensions that are ideally stimulated by VBP and (2) constructing a framework of a theoretically preferred VBP design. Based on a synthesis of both theoretical and empirical studies on payment incentives, we conclude that VBP should consist of two components: a relatively large base payment that implicitly stimulates value and a relatively small payment that explicitly rewards measurable aspects of value (pay-for-performance). Being the largest component, the base payment design is essential, but often neglected when it comes to VBP reform. We explain that this base payment ideally (1) is paid to a multidisciplinary provider group (2) for a cohesive set of care activities for a predefined population, (3) is fixed, (4) is adjusted for the population’s risk profile and (5) includes risk-mitigating measures. Finally, some important trade-offs in the practical operationalisation of VBP are discussed.

Pay-performance sensitivity and corporate governance mechanisms: evidence from Tunisia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Meriem Ghrab ◽  
Marjène Gana ◽  
Mejda Dakhlaoui
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Pay For Performance ◽  
Simultaneous Equation ◽  
Executive Pay ◽  
Estimation Model ◽  
Content Type ◽  
Explanatory Variables ◽  
Performance Sensitivity ◽  
Ceo Pay

Purpose The purpose of this study is to analyze the CEO compensation sensitivity to firm performance, termed as the pay-for-performance sensitivity (PPS) in the Tunisian context and to test the robustness of this relationship when corporate governance (CG) mechanisms are considered. Design/methodology/approach The consideration of past executive pay as one of the explanatory variables makes this estimation model a dynamic one. Furthermore, to avoid the problem of endogeneity, this study uses the system-GMM estimator developed by Blundell and Bond (1998). For robustness check, this study aims to use a simultaneous equation approach (three-stage least squares [3SLS]) to estimate the link between performance and CEO pay with a set of CG mechanisms to control for possible simultaneous interdependencies. Findings Using a sample of 336 firm-years from Tunisia over the 2009–2015 periods, this study finds strong evidence that the pay-performance relationship is insignificant and negative, and it becomes more negative or remains insignificant after introducing CG mechanisms consistently with the managerial power approach. The findings are robust to the use of alternative performance measures. This study provides new empirical evidence that CEOs of Tunisian firms abuse extracting rents independently of firm performance. Originality/value This study contributes to the unexamined research on PPS in a frontier market. This study also shows the ineffectiveness of the Tunisian CG structure and thus recommends for the legislator to impose a mandatory CG guide.

Economic Principles for Medicare Reform

2019 ◽  
Vol 686 (1) ◽  
pp. 63-92
Author(s):  
Amitabh Chandra ◽  
Craig Garthwaite
Keyword(s):  
Pay For Performance ◽  
Medicare Advantage ◽  
Short Term ◽  
Market Prices ◽  
Economic Framework ◽  
Trade Offs ◽  
Medicare Program ◽  
Commercial Market ◽  
New Treatments ◽  
Do So

In this article, we develop an economic framework for Medicare reform that highlights trade-offs that reform proposals should grapple with, but often ignore. Central to our argument is a tension in administratively set prices, which may improve short-term efficiency but do so at the expense of dynamic efficiency (slowing innovations in new treatments). The smaller the Medicare program is relative to the commercial market, the less important this is; but in a world where there are no market prices or the private sector is very small, the task of setting prices that are dynamically correct becomes more complex. Reforming Medicare should focus on greater incentives to increase competition between Medicare Advantage plans, which necessitates a role for government in ensuring competition; premium support; less use of regulated prices; and less appetite for countless “pay for performance” schemes. We apply this framework to evaluate Medicare for All proposals.

Do board interlocks support monitoring effectiveness?

2019 ◽  
Vol 42 (11) ◽  
pp. 1278-1296 ◽  
Author(s):  
Franziska Handschumacher ◽  
Maximilian Behrmann ◽  
Willi Ceschinski ◽  
Remmer Sassen
Keyword(s):  
Panel Data ◽  
Resource Dependence ◽  
Pay For Performance ◽  
Resource Dependence Theory ◽  
Risk Governance ◽  
Data Set ◽  
Content Type ◽  
Board Interlocks ◽  
Performance Sensitivity ◽  
The Impact

Purpose This paper aims to investigate the relationship between board interlocks and monitoring effectiveness for listed German companies in a context of risk governance. While agency-theory and resource-dependence-theory suggest a positive association between board interlocks and monitoring effectiveness, reasons such as limited temporal resources of busy board members may suggest a negative association. Design/methodology/approach By using panel data regression, the authors examined the association between board interlocks and monitoring effectiveness, which was approximated by excessive management compensation, pay-for-performance-sensitivity and CEO turnover-performance-sensitivity. The data set comprises 3,998 directorships for 132 listed German companies covering the period 2015-2017. Findings The authors find that board interlocks are associated with not only a more excessive management pay and less performance-sensitive turnover but also a higher pay-for-performance-sensitivity. Originality/value The study examines the impact of multiple directorships based on a German panel data set that includes both multiple appointments of members to national supervisory boards and all other appointments to national and international executive and supervisory bodies. The authors compile three measures to operationalize monitoring effectiveness.

The Millennium Development Goals and Education: Accountability and Substitution in Global Assessment

2019 ◽  
Vol 73 (03) ◽  
pp. 547-578 ◽  
Author(s):  
James H. Bisbee ◽  
James R. Hollyer ◽  
B. Peter Rosendorff ◽  
James Raymond Vreeland
Keyword(s):  
Public Goods ◽  
Public Good ◽  
Political Institutions ◽  
Millennium Development Goals ◽  
Formal Model ◽  
Substitution Effect ◽  
Substitution Effects ◽  
Trade Offs ◽  
Enrollment Rates ◽  
Development Goals

AbstractPrecise international metrics and assessments may induce governments to alter policies in pursuit of more favorable assessments according to these metrics. In this paper, we explore a secondary effect of global performance indicators (GPIs). Insofar as governments have finite resources and make trade-offs in public goods investments, a GPI that precisely targets the provision of a particular public good may cause governments to substitute away from the provision of other, related, public goods. We argue that both the main effect of the GPI (on the measured public good) and this substitution effect vary systematically based on the domestic political institutions and informational environments of targeted states. Specifically, we contend that both the main and substitution effects of GPIs should be largest for governments that are least accountable (opaque and nondemocratic) and should be smallest for those that are most accountable. We illustrate the logic of these arguments using a formal model and test these claims using data on primary and secondary enrollment rates across 114 countries. We find that countries substitute toward primary education enrollment rates (which is targeted by the Millennium Development Goals) and away from secondary (which is not), and that these effects are mitigated as accountability rises.

Incentive mechanisms, loan decisions and policy rationing

2016 ◽  
Vol 76 (3) ◽  
pp. 326-347 ◽  
Author(s):  
Ying (Jessica) Cao ◽  
Calum Turvey ◽  
Jiujie Ma ◽  
Rong Kong ◽  
Guangwen He ◽  
...  
Keyword(s):  
Prior Information ◽  
Feasible Solution ◽  
Pay For Performance ◽  
Credit Rationing ◽  
Type I ◽  
Income Loss ◽  
Content Type ◽  
Trade Offs ◽  
Credit Cooperatives ◽  
Loan Officers

Purpose The purpose of this paper is to investigate whether negative incentives in the pay-for-performance mechanism would trigger loan officers to strategically reject potentially good loans. If so, what is the feasible solution to alleviate the problem. Design/methodology/approach A framed field experiment was conducted to test loan decision behaviors using loan officers from Rural Credit Cooperatives in Shandong, China. A 2 by 2 between-subject design was adopted to generate variation in incentives and prior information about credit risks. Findings Results showed that loan officers did ration credit by rejecting more loans when facing risks of personal income loss. However, providing risk information about the application pool boosted the approval rate and offset the behavioral responses by a roughly same magnitude. Research limitations/implications Findings in this study suggest that certain institutional settings can result in credit rationing via strategic loan misclassification. Further, information sometimes generates similar effects as those costly incentives or mechanisms that are not implementable in practice. Originality/value This study adopted an innovative monetized experimental design that allows researchers to examine the (otherwise unobservable) trade-offs between Type I and Type II error in loan misclassification as incentives change. In addition, an anchoring prior information treatment is used to solicit the relative power of almost costless information and costly monetary incentives, and to point out a potentially feasible solution.

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