In our setting, six subordinates, which constitute a cohort,
are ranked in one of four ways: (1) subordinate compensation;
(2) superior residual claim (firm profit); (3)
both subordinate compensation and firm profit; and, (4)
randomly. Rankings based on subordinate compensation
are congruent with subordinates’ financial incentives to
maximize the surplus claimed but are not aligned with
honest reporting. Rankings based on firm profit are
congruent with honest reporting but at odds with subordinates’
financial incentives. Rankings based on both
subordinate compensation and firm profit provide subordinates
one metric that is congruent with subordinates’
financial incentives and one metric that is at odds with
subordinates’ financial incentives. Random rankings are
not affected in any way by subordinates’ budget requests
and, as such, are not under subordinates’ control.1