the contract into two regions. After sufficiently high performance, the agent reaches the over-compensation region, where … he receives excessive benefits compared to the contract without ambiguity, while after low performance, he enters the …

cost. The robust contract generates a seemingly excessive pay-performance sensitivity. The worst-case effort cost is high … after good performance, but low after bad performance, which leads to overcompensation and undercompensation respectively … and provides a new rationale for using performance-sensitive debt. I also characterize the agent's incentives when the …

to an NPV criterion can occur on the path of the contract. As past performance increases, the firm chooses projects which … require higher pay-performance sensitivity. When the continuation value is large, investment projects are chosen more …