How CEO Overconfidence Shapes Bonus Target Setting: Key Findings from New Research
This research provides compelling evidence that boards adopt more aggressive performance target ratcheting for overconfident CEOs than for their less confident counterparts. Boards appear to strategically leverage the overconfidence of their CEOs, as they are less concerned about the "ratchet effect"—the adverse incentive problem of target ratcheting. Instead, they use aggressive ratcheting as a tool to increase incentive intensity, encouraging CEOs to meet more ambitious performance goals.
The study also finds that this aggressive target setting is more pronounced in firms with stronger monitoring environments. In these firms, robust governance frameworks allow boards to balance the benefits of heightened effort incentives with the potential risks of fraud or manipulation. This finding aligns with economic theories linking stronger monitoring to higher incentive intensity.
Moreover, the research highlights that boards rely on a broader range of information than previously assumed. In addition to evaluating past performance and operational capacity, boards consider behavioral traits like CEO overconfidence when making ratcheting decisions. This finding underscores that boards strategically integrate both objective metrics and subjective biases into their decision-making processes, providing a more nuanced understanding of how target setting operates.
The study further contributes to the literature on managerial overconfidence by exploring its implications for executive compensation. While previous research has focused on how overconfidence affects corporate policies or equity-based compensation, this study highlights an underexplored dimension: how boards fine-tune performance targets in annual bonus contracts. By employing aggressive ratcheting, boards create a complementary mechanism to intensify incentives for overconfident CEOs.
Ultimately, this research demonstrates how boards actively consider the interplay between managerial traits and contractual incentives when designing performance targets. It offers valuable insights into how firms can optimize their incentive structures to achieve organizational goals while balancing the challenges posed by managerial overconfidence.
Keywords: Corporate Governance, CEO Overconfidence, Executive Compensation, Performance Targets
Research Paper:
Kim, S., & Park, J. (2024). CEO Overconfidence and Bonus Target Ratcheting. The Accounting Review, 99(5), 333–362. https://doi.org/10.2308/TAR-2020-0461
👉 Read the original article: [https://doi.org/10.2308/TAR-2020-0461]
CEO過度自信如何影響績效目標設定？研究發現揭示關鍵洞察
績效目標設定是企業治理中的關鍵環節，對高管行為的引導和企業目標的實現起著至關重要的作用。以往的研究主要集中在公司過去的業績與未來目標之間的關係，或者財務和運營指標如何影響績效目標設定。香港理工大學會計與金融學院Jongwon Park 教授團隊近期發表在 The Accounting Review（2024）上的研究，題為 《CEO Overconfidence and Bonus Target Ratcheting》，開闢了一個全新的研究領域，探討了管理者特質，特別是CEO的過度自信，如何影響董事會在年度獎金績效目標設定中的決策。
研究發現，董事會對過度自信的CEO傾向於採取更激進的績效目標調整。這種策略表明，董事會更傾向於利用CEO的過度自信，而不擔心目標提升可能帶來的負面激勵問題（即“目標提升效應”）。通過更激進的目標設定，董事會增強了激勵強度，促使CEO實現更高的績效目標。
此外，研究還發現，這種激進的目標設定在治理環境較強的公司中尤為顯著。在這些公司中，健全的治理機制幫助董事會在增強努力激勵的收益與防範欺詐或操縱風險之間實現平衡。這一發現與經濟理論中關於強監督環境與高激勵強度相輔相成的觀點一致。
研究還強調，董事會在目標設定過程中依賴的信息範圍比傳統認知更為廣泛。除了評估公司的過去業績和運營能力外，董事會還會考慮CEO的行為特質（如過度自信），以制定更明智的目標決策。這一發現表明，目標設定不僅僅是對客觀數據的分析，還包括對主觀特質的綜合考量，揭示了董事會決策的複雜性和多維性。
此外，該研究為高管過度自信的文獻提供了新的貢獻。儘管過度自信對企業政策的影響已被廣泛研究，但它在高管薪酬背景下的作用卻鮮有探討。本研究揭示了董事會如何通過年度獎金合同中的績效目標來激勵過度自信的CEO，激進的目標提升成為與其他薪酬激勵手段相輔相成的重要機制。
最終，這項研究表明，董事會在設計績效目標時，會積極考慮管理者特質與合同激勵之間的交互作用。這些發現為企業在優化激勵結構時提供了重要參考，幫助企業更好地平衡組織目標與CEO個人特質之間的關係。
關鍵詞：企業治理 , CEO過度自信, 高管薪酬, 績效目標
研究論文（只限英文版）：Kim, S., & Park, J. (2024). CEO Overconfidence and Bonus Target Ratcheting. The Accounting Review, 99(5), 333–362. https://doi.org/10.2308/TAR-2020-0461
👉 閱讀原文：[https://doi.org/10.2308/TAR-2020-0461]
Assistant Professor
