Traditionally, researchers have had difficulty testing the relationship between the degree of risk or uncertainty in workers' environments and incentive pay. The authors employ Prendergast's (2002) theory that incorporates the delegation of worker authority into the principal-agent model to...

One of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper, we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher efficiency are also riskier. Using a...

This paper seeks to characterize incentive compensation in a static principal-agent moral hazard setting in which both the principal and the agent are prudent (or downside risk averse). We show that optimal incentive pay should then be `approximately concave' in performance, the approximation...

This paper investigates the optimal design of incentives when agents distort probabilities. We show that the type of probability distortion displayed by the agent and its degree determine whether an incentivecompatible contract can be implemented, the strength of the incentives included in the...

We examine whether the equity incentive heterogeneity of the executive team engenders a positive externality by curtailing stock price crash risk. Supporting this prediction, we find a negative relation between the equity incentive heterogeneity of the executive team and stock price crash risk....

The ongoing global financial crisis underlined the urgent need of changing traditional executives compensation schemes. Governments and authorities reacted through regulation and standards, while professionals and academics have suggested several new pay mechanisms (e.g. deferred bonus). Given...

The ongoing global financial crisis underlined the urgent need of changing traditional executives compensation schemes. Governments and authorities reacted through regulation and standards, while professionals and academics have suggested several new pay mechanisms (e.g. deferred bonus). Given...

In the presence of managerial short-termism and asymmetric information about skill and effort provision, firms may opportunistically shift earnings from uncertain to more certain times. We document that firms report more negative discretionary accruals when financial markets are less certain...

We offer evidence that the use of Relative Performance Evaluation (RPE) in CEOs' incentive contracts influences the effect of risk-taking incentives on both the magnitude and composition of firm risk. We find that when the incentive design lacks RPE features, the incentive portfolio vega...

A performance standard's horizon is the time given to achieve the standard. Horizons vary considerably in practice, and the goal-setting literature provides mixed evidence on whether short or long horizons are more effective at eliciting effort from workers. I predict and find that uncertainty...