Performance Pay, Internal Control and Corporate Misconduct

Micro Seminar
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Speaker
Anja Schöttner
Date
Friday 19 Apr 2024, 15:30 - 16:45
Type
Seminar
Room
T3-13
Building
Mandeville Building
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We study a situation where an employee chooses productive effort to achieve a target but can also manipulate a performance measure to pretend target achievement and earn an undeserved bonus. Whereas the firm may benefit from undetected manipulation, both the employee and the firm realize a loss in case of detected manipulation.

(joint work with Matthias Kräkel)

We analyze how performance pay, internal control, and external control (e.g., by a public authority) interact to prevent or promote manipulation. We show that the firm implements internal control to enhance effort but also to induce manipulation more often or at lower costs. Under certain circumstances, both internal and external control reduce the ex ante probability of manipulation by inducing higher effort, which yields a lower failure probability and, thus, a lower probability that manipulation occurs. From a regulatory perspective, a combination of contract regulation, a mandatory internal control system, and high external control is most effective to prevent manipulation. 

About the speaker

Anja is a Professor of Economics at Humboldt since 2015. She is an expert in organizational economics and personnel economics, studying issues such as optimal compensation schemes, delegation, and job design. She works on both applied theory and field experiments. 

Registration

If you would like to book a bilateral or join for lunch or dinner on Friday, please send an email to dur@ese.eur.nl.

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