We use data obtained from a large Korean conglomerate to explore the design and effec ts of a long-term performance plan (LTPP) and the short-term incentive plan (STIP) with wh ich it is used. The payouts from the LTPP were significantly larger than those for the STIP. LTPP performance targets were, on average, easier to achieve that were those for the STIP, but target achievability was not significantly related to planning uncertainty. Importantly, the adoption of the LTPP did appear to lengthen managers’ decision making horizons, as the adoption of the plan was associated with subsequently larger long-term investments, even after controlling for changes in economic conditions, and higher key-performance-indicator performance.
The Design and Effects of a Long-Term Performance Plan
KIM, JONGHWAN;
2012
Abstract
We use data obtained from a large Korean conglomerate to explore the design and effec ts of a long-term performance plan (LTPP) and the short-term incentive plan (STIP) with wh ich it is used. The payouts from the LTPP were significantly larger than those for the STIP. LTPP performance targets were, on average, easier to achieve that were those for the STIP, but target achievability was not significantly related to planning uncertainty. Importantly, the adoption of the LTPP did appear to lengthen managers’ decision making horizons, as the adoption of the plan was associated with subsequently larger long-term investments, even after controlling for changes in economic conditions, and higher key-performance-indicator performance.
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