Balanced Scorecards: A Relational Contract Approach

Reward systems based on balanced scorecards typically connect pay to an index, i.e. a weighted sum of multiple performance measures. However, there is no formal incentive model that actually describe this kind index contracts as optimal solution. In paper, we show contract may indeed be if measures are non-verifiable so the contracting parties must rely self-enforcement. Under standard assumptions, self-enforcing (relational) between principal and Multitasking agent where gets bonus outcomes various tasks (the index) exceeds hurdle. For parametric (multinormal) specification, efficiency improves with higher precision measure, since strengthens incentives. Correlations measurements for reason beneficial. similar reason, also want include verifiable in relational order improve