Contracting with Disagreement about Performance Evaluation and Compensation

I examine incentive contracting with an agent who disagrees with the principal and creates organizational frictions when the actual performance evaluation and compensation fall short of what he thinks he should earn. Results show that seemingly rigid policies, such as long-term performance evaluations, compressed compensation schemes and seniority-based promotions, are robust tools for providing incentives and managing disagreements especially when the principal does not know the exact mechanism of disagreement formation