Standard principal-agent theory predicts that large firms should not use employee stock options and other stock-based compensation to provide incentives to non-executive employees. Yet, business practitioners appear to believe that stock-based compensation improves incentives, and mounting...

This paper examines multi-period compensation contracts when retirement is anticipated. Short-term contracts in long-term employment relationships are equivalent to a long-term renegotiation-proof contract. The dynamic of incentive rates is determined by (i) how and in which periods managerial...

Workers in an important category of jobs select tasks autonomously. We study the tradeoff between monetary bonuses and non-monetary prizes as tools for guiding their choices. An optimal incentive scheme prioritizes workers for prizes in return for taking on underserved tasks, and this...

I study when a firm prefers to be transparent about pay using a simple multidimensional signalling model. Pay transparency within the firm means that a worker can learn about their own productivity from another worker's pay. This can either encourage or discourage workers—which affects...

I study when a firm prefers to be transparent about pay using a simple multidimensional signaling model. Pay transparency within the firm means that a worker can learn about his own worker-firm match from another worker's pay. This can either encourage or discourage workers-which affects...

I study the implications of agency frictions for the pricing policy of institutional market makers. In a setting where a market maker cannot observe the actions of an employed trader, I derive the optimal compensation structure and pricing policy. The theory demonstrates that incentive...

We examine a general equilibrium dynamic economy in which each firm i) hires a manager who can divert cash flows and ii) can fire him after poor performance, generating costs to both parties.The contract is terminated when the manager's continuation value reaches his compensation at another firm...

This paper studies optimal executive pay when the CEO is concerned about fairness: if his wage falls below a perceived fair share of output, the CEO suffers disutility that is increasing in the discrepancy. Fairness concerns do not lead to fair wages always being paid -- to induce effort, the...

Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge...

Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge...