Performance measure properties and efficacy of incentive contracts: perceptions of U. S. employees

• Published in: International journal of human resource management Vol. 24; no. 17; pp. 3378 - 3392
• Main Authors: Li, Wei, Alam, Pervaiz, Meonske, Norman
• Format: Journal Article
• Language: English
• Published: London Routledge 01-10-2013; Taylor & Francis LLC
• Subjects: cross-national differences; efficacy of incentive contracts; Employee attitude; employee perceptions; Employees; Employment contracts; Incentive plans; Noise; Performance management; performance measure properties; Studies; United States; United States > US
• ISSN: 0958-5192; 1466-4399
• DOI: 10.1080/09585192.2013.770778

This paper examines how employees perceive the impact of performance measure properties (noise and distortion) on the efficacy of incentive contracts in the United States. It surveys 98 employees at middle and lower levels of U. S. firms across different industries. The survey results show that employees perceive noise and distortion in performance measures to significantly influence the overall efficacy of incentive plans. Specifically, employees perceive that incentive plans with less noisy or distorted measures attract better employees to their firms. However, employees do not perceive lower noise or distortion in performance measures to motivate more effort in their work after controlling for the selection effect of incentive plans. These results illustrate the importance of performance measure properties in the U. S. incentive contracts and provide evidence regarding cross-national differences in management practices.