Tailoring the Weights on Objective versus Subjective Performance Measures between Top Management and Middle Managers: Evidence from Performance-Based Equity Incentive Plans

What is it about?

We know a great deal about compensation contract design for top management, such as CEOs and CFOs, from prior research, but we know very little about compensation contract design for middle managers. Top management and middle managers typically have different responsibilities, which calls for the tailoring of performance measurement and incentives between top management and middle managers. Our study provides empirical evidence on when firms would vary the weights on subjective vs. objective performance measures between top managers and middle managers. Results of our study offer useful insights to designers of compensation contracts in organizations.

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