Performance evaluations are typically based on a formula that specifies in advance all performance measures, their relative incentive weights, and targets to be met. However, beginning-of-year performance targets can become outdated due to unforeseen events, which calls for ex post adjustments...

Recent studies in managerial accounting point out that the firms do not fully ratchet up the managers' future performance targets based on their past performance. This study offers a novel theoretical perspective on the firm's executive compensation strategy that supports such latest empirical...