Pay for Performance and Beyond

Incentives are often associated with narrow financial rewards such as bonuses or executive stock options. But in general such rewards are just a small part of the design of incentives. Properly designed incentive systems have to take into account the full portfolio of activities that the agent can engage in, the array of instruments, many nonfinancial, that are available to influence individuals and consider the factors that motivate them in different settings. Thinking about incentives as a system of interacting instruments and influences has been a major advance in the economics of incentives in recent years. In this lecture I will describe the path from pay for performance to the broader view of incentive systems.