ORCID

0000-0002-9702-9170

Keywords

contract framing, loss aversion, performance-based compensation, effort, performance

Subject Categories

Accounting | Business Administration, Management, and Operations | Finance and Financial Management

Abstract

This dissertation contains three studies examining contract framing, with implications for how organizations structure and frame performance-based compensation systems. Across all studies, I compare penalty contracts to bonus contracts with gain framing and bonus contracts with loss framing. My first study examines how managers prefer to frame performance-based compensation systems on average and identifies how the traits trust propensity, empathy, personal norm of reciprocity, loss aversion, Machiavellianism, and critical thinking disposition are associated with certain preferences. I find that mangers prefer bonus contracts to penalty contracts on average and that empathy is positively associated with this preference. My second study analyzes how these contracts affect feelings of disappointment, perceived fairness, effort, and performance when employees perform both contracted and non-contracted work. Evidence suggests that bonus contracts with loss framing, like penalty contracts, enhance feelings of disappointment related missing contingent compensation when compared to bonus contracts with gain framing. Simultaneously, these contracts improve perceptions of fairness compared to penalty contracts, akin to bonus contracts with gain framing. Mediation analyses indicate that feelings of disappointment are associated with greater effort and performance on contracted and non-contracted work, while perceived fairness is associated with greater effort and performance on non contracted work. This provides indirect evidence that bonuses with loss framing may be able to draw out greater effort and performance on both contracted and non-contracted work. Finally, my third study explores how contract framing influences managers’ performance ratings. I do not find evidence to support the expectation that contract framing affects managers’ performance expectations, but it may affect the compression of ratings based on exploratory analysis. These findings contribute to the body of contract framing literature by revealing manager framing preferences, identifying benefits of bonus contracts with loss framing, and analyzing contract framing affects supervisors as well as employees.

Completion Date

2026

Semester

Summer

Committee Chair

Kelly, Khim

Degree

Doctor of Philosophy (Ph.D.)

College

College of Business

Department

Kenneth G. Dixon School of Accounting

Format

PDF

Document Type

Dissertation

Language

English

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