Earnings Targets and Annual Bonus Incentives

摘要: ABSTRACT: We examine the extent to which firms use past performance as a basis for setting earnings targets in their bonus plans and assess implications of such managerial incentives. find that high-profitability commonly decrease when managers fail meet prior-year but rarely increase targets. Conversely, we low-profitability or exceed This target-revision process yields serial correlation target difficulty—targets remain relatively easy (or difficult) through time. also are reluctant revise below zero, resulting an unusually high frequency zero abnormally difficult achieve. Collectively, our findings suggest incorporate information into targets, yet they do so only limited extent. is consistent with theoretica...