Prior research documents performance improvements following the implementation of pay-for-performance (PFP) bonus plans. However, bonus plans typically pay for performance relative to a goal, and the manager whose performance is to be evaluated often participates in setting the goal.

Using sales and sales goal data from 61 stores of a U.S. retail firm over 10 quarters, Professor Shannon Anderson with co-authors Henri C. Dekker from VU University Amsterdam and Karen L. Sedatole from the Eli Broad College of Business at Michigan State University find that the introduction of a performance-based bonus plan with participative goal setting is accompanied by lower goals that are more accurate predictors of subsequent sales performance.

This paper won Anderon and her co-authors the Best Paper Award at the 2006 AAA Management Accounting Section Midyear Research Conference.