How Executive Incentive Design Affects Risk-Taking: A Literature Review

Behavioral & Experimental Accounting eJournal Pub Date : 2020-12-16 DOI:10.2139/ssrn.3373121

Niklas Kreilkamp, Sascha Matanovic, Maximilian Schmidt, Arnt Wöhrmann

{"title":"How Executive Incentive Design Affects Risk-Taking: A Literature Review","authors":"Niklas Kreilkamp, Sascha Matanovic, Maximilian Schmidt, Arnt Wöhrmann","doi":"10.2139/ssrn.3373121","DOIUrl":null,"url":null,"abstract":"Due to agency problems, firms use management control systems to motivate employees to act in the firms’ interest. This process includes motivating employees to increase effort as well as aligning risk preferences. Whereas Bonner and Sprinkle (2002) review and discuss research findings regarding the effects of monetary incentives on effort and performance, we approach the latter component, i.e., risk. The purpose of this literature review is to systematically present and review research findings regarding the effects of monetary incentives on risk-taking. We thus distinguish between individual performance-based pay, equity-based pay and tournament compensation. Further, implications for incentive system design in practice as well as paths for future research are discussed. On the one hand, we provide suggestions on how to increase employee risk-taking and reduce loss-aversive behavior. On the other hand, we discuss instruments that prevent employees from taking high (excessive) risks. Ultimately, when designing incentive systems, it is always crucial to consider the potential effects on both effort and risk-taking.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2020-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"6","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Behavioral & Experimental Accounting eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3373121","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}

引用次数: 6

Abstract

Due to agency problems, firms use management control systems to motivate employees to act in the firms’ interest. This process includes motivating employees to increase effort as well as aligning risk preferences. Whereas Bonner and Sprinkle (2002) review and discuss research findings regarding the effects of monetary incentives on effort and performance, we approach the latter component, i.e., risk. The purpose of this literature review is to systematically present and review research findings regarding the effects of monetary incentives on risk-taking. We thus distinguish between individual performance-based pay, equity-based pay and tournament compensation. Further, implications for incentive system design in practice as well as paths for future research are discussed. On the one hand, we provide suggestions on how to increase employee risk-taking and reduce loss-aversive behavior. On the other hand, we discuss instruments that prevent employees from taking high (excessive) risks. Ultimately, when designing incentive systems, it is always crucial to consider the potential effects on both effort and risk-taking.

查看原文本刊更多论文

高管激励设计如何影响风险承担:文献综述

由于代理问题，企业使用管理控制系统来激励员工为企业的利益而行动。这个过程包括激励员工增加努力以及调整风险偏好。尽管Bonner和Sprinkle(2002)回顾并讨论了关于金钱激励对努力和绩效影响的研究结果，但我们研究的是后一个组成部分，即风险。本文献综述的目的是系统地介绍和回顾有关货币激励对风险承担的影响的研究结果。因此，我们区分了基于个人绩效的薪酬、基于股权的薪酬和锦标赛薪酬。在此基础上，讨论了激励制度设计在实践中的启示和未来研究的路径。一方面，我们提出了如何提高员工的冒险精神，减少损失厌恶行为的建议。另一方面，我们讨论了防止员工承担高风险(过度)风险的工具。最后，在设计激励制度时，考虑对努力和冒险的潜在影响总是至关重要的。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

求助全文

约1分钟内获得全文求助全文

来源期刊

Behavioral & Experimental Accounting eJournal

自引率

0.00%

发文量