Prendergast, Canice. 'What have we learnt about pay for performance?'. - Economic & Social Review, Vol. 42, No. 2, Summer, 2011, pp113-134, Dublin: Economic & Social Research Institute
Governance is a central concern of economics. In much of economic activity,
relevant principals (firms, voters, government agencies, and so on)
delegate decisions to agents who may not have the interests of those principals
at heart. Much of the literature in microeconomics of the last two decades has
been concerned with the issue – what mechanisms can firms use to attempt to
align interests? That such concerns are important hardly needs to be
emphasised in the current Irish economic environment, where concerns of
excessive lending by the banking sector have resulted in many claims about
compensation and oversight. The purpose of this lecture is to overview the
literature on one mechanism that has been proposed for solving agency
concerns – pay for performance – but to place it in the context of other forms
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