Teams, Leaders, and Performance Measures

Posted: 2 Jul 2013

See all articles by Naomi Rothenberg

Naomi Rothenberg

University of Alberta - Department of Accounting, Operations & Information Systems

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2008

Abstract

This paper studies a principal's preference for an aggregate measure of performance of a team, when team members may have superior information about productivity. One agent can be designated a leader with private access to information, or both agents have either equal or no access to private information. Group or aggregate measures of performance are preferred when either one or both agents are uninformed and help reduce inefficiencies that result from the principal's lack of information. The advantage of the group performance measure is in lower payments for the leader than with informed agents because of muted incentives, and in lower expected payments than with individual measures in the least productive state, when it is more difficult for both agents to be successful and earn the bonus. This paper also studies whether or not information should be restricted to either one or both agents. With either individual or group performance measures, it is optimal to always restrict information to one or both agents, but with both measures of performance, any of the team compositions can be optimal. With either individual or group performance measures, the principal reduces payments by exploiting the agent's lack of information, but with both measures, the principal optimally uses relative performance evaluation to reduce the agents' informational advantage.

Keywords: performance measurement, incentives, teams, leaders

JEL Classification: M41, D82, M54, L29

Suggested Citation

Rothenberg, Naomi, Teams, Leaders, and Performance Measures (October 1, 2008). Contemporary Accounting Research, Vol. 28, No. 4, pp. 1123-1140, Winter 2011, University of Alberta School of Business Research Paper No. 2013-1089, Available at SSRN: https://ssrn.com/abstract=2283316

Naomi Rothenberg (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

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