Dynamic managerial compensation: On the optimality of seniority-based schemes

Arbeitspapier

We study the optimal dynamics of incentives for a manager whose ability to generate cash .ows changes stochastically with time and is his private information. We show that, in general, the power of incentives (or "pay for performance") may either increase or decrease with tenure. However, risk aversion and high persistence of ability call for a reduction in the power of incentives later in the relationship. Our results follow from a new variational approach that permits us to tackle directly the "full program," thus bypassing some of the difficulties of working with the "relaxed program" encountered in the dynamic mechanism design literature.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Discussion Paper ; No. 1579

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asymmetric and Private Information; Mechanism Design
• Thema: managerial compensation ; power of incentives ; pay for performance ; dynamic mechanism design ; adverse selection ; moral hazard ; persistent productivity shocks ; risk aversion

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Garrett, Daniel ; Pavan, Alessandro
• Ereignis: Veröffentlichung
• (wer): Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
• (wo): Evanston, IL
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/119415
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ