INCENTIVES – EFFECTIVENESS AND EFFICIENCY

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Abstract

This paper covers the question if and how incentive schemes work evaluated by their impact on company performance (market capitalization and profit before tax). Based on a unique data set for German executive directors of DAX companies it can be proved that neither short (STI) nor long term incentives (LTI) plans necessarily support the company success. It rather depends on the efficiency of each plan, i. e. on its design. Special attention has to be paid on target setting. Short term focused objectives often miss their targets, whereas long term oriented objectives significantly support the company success. To solve the prisoner’s dilemma between employers and employees by a quasi-endless game, additional measures may be helpful, such as share ownership guidelines.

Keywords: Incentives, Efficiency, Effectiveness, Directors

How to cite this paper: Hinderlich, B. (2014). Incentives – Effectiveness and efficiency. Journal of Governance and Regulation, 3(1), 7-27. https://doi.org/10.22495/jgr_v3_i1_p1