Performance Management in a Decentralized Setting: Monitoring and Gaming in the Financial Services Industry

This paper addresses the problems of untruthful reporting, distortion and gaming of data and performance measures. It explores this relatively neglected area in the principal‐agent framework and also tries to assess whether the level of organizational decentralization has some effect on the scope of these problems. We develop a multi‐level game theoretical model showing that agents are key players, and that monitoring and sanctioning for gaming should be included in the explicit contract between principals and subordinates in every level of the organization. We apply the model and its insights to the financial services industry where misconduct flourishes. Copyright © 2016 John Wiley & Sons, Ltd.