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Target-Setting Practices in CEO Bonus Plans

Date: Thursday, November 1, 2018
Time: 13:00 to 14:00
Duration: 1 hour
Contact: Josephine O'Sullivan -
Location: KB1-16, Kemmy Business School, University of Limerick, Ireland

Public Policy, Enterprise, Governance and Sustainability (PPEGS) Theme Seminar Series The Public Policy, Enterprise, Governance and Sustainability (PPEGS) Research Theme is pleased to announce its next presenter

Orla Lenihan Department of Accounting and Finance, Kemmy Business School, University of Limerick

All are welcome to attend with tea and coffee provided before the seminar begins.

Biography: Orla Lenihan obtained a Bachelor of Commerce and a Master of Accounting from NUIG. Following that, she worked with PricewaterhouseCoopers, a Big 4 professional accounting firm, where she obtained her Chartered Accountancy qualification. In June 2013, Orla was selected as the joint winner of the 2013 UL Award for Excellence in Large Group Teaching. She is currently completing a part-time PhD with UCD in the area of performance-based CEO compensation. Based on this research, she was presented with the IAFA Scholar Award in 2016. She has international conference publications at the American Accounting Association, the Accounting and Finance Association of Australia and New Zealand, the European Accounting Association, the British Accounting and Finance Association, and the British Academy of Management.

Abstract: This study examines the extent of challenge within CEO performance targets. On the one hand, targets should be sufficiently difficult to motivate strong performance. On the other hand, targets that are perceived as unattainable are demotivating. We gather data from firm compensation discussions to provide evidence on S&P 500 firms’ target-setting practices within CEO bonus plans. We find that performance targets are challenging relative to past performance, yet achievable in the context of expected performance. This is consistent with insights from motivational goal-setting theory.

Difficult targets are offset with easier targets in areas of performance that are less heavily weighted in CEO bonus plans. This demonstrates that boards are balancing the twin objectives of challenging targets and achievable targets, in an attempt to maximize motivation. We also find, through a cross-sectional regression analysis, that smaller firms and firms with higher growth expectations set more challenging targets. Our results complement previous findings on the economic determinants of target setting, as predicted by optimal contracting theory.

The Public Policy, Enterprise, Governance and Sustainability Seminar Series is organised by:

Co-Theme Leaders:

  • Prof. Helena Lenihan (Department of Economics)
  • Dr. Philip O’ Regan (Dean, Kemmy Business School)

For further information on webpage: