Teams, Leaders, and Performance Measures
Contemporary Accounting Research, Vol. 28, No. 4, pp. 1123-1140, Winter 2011
University of Alberta School of Business Research Paper No. 2013-1089
Posted: 2 Jul 2013
There are 2 versions of this paper
Teams, Leaders, and Performance Measures
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: Suggested Citation