The informativeness principle demonstrates that a contract should depend on informative signals. This paper studies how it should do so. Signals that indicate the output distribution has shifted to the left (e.g. weak industry performance) reduce the threshold for the manager to be paid; those...

How to incentivize a manager to create value and be socially responsible? A manager can predict how his decisions will affect measures of social performance, and will therefore game an incentive system that relies on these measures. Still, we show that the compensation contract uses measures of...