Management Accounting Section Midyear Meeting

Target Ratcheting and Retention Concerns in Financially Distressed Firms

• In Event: Incentives and Retention

Abstract

In this study, we investigate how retention concerns affect target ratcheting in a firm under financial distress. Specifically, we argue that in such a setting, firms may employ target ratcheting differently across employees with the aim to retain high-performing individuals. We further suggest that in weak economic environments, where the supply of highly skilled individuals is scarce and companies have a stronger incentive to retain their best performers, targets are ratcheted even more favorably for high-performing agents. Using proprietary data of a retail company at the store manager level across 161 stores in nine European countries combined with local macroeconomic data from Eurostat for the years 2011 through 2014, we find support for our predictions.

Authors

• Isabella Grabner, WU Vienna University

• Konstantin Gruen, WU Vienna

• Arthur Posch, University of Bern

• Markus Wabnegg, WU Vienna University of Economics and Business