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...

Adverse selection harms workers, but benefits firms able to identify talent. An informed intermediary expropriates its agents' ability by threatening to fire and expose them to undervaluation of their skill. Agents' track record gradually reduces the intermediary's information advantage. We show...

We study a scenario in which a firm designs the compensation contract for a salesperson who exerts effort to increase the level of uncertain demand and, jointly, the firm also decides the level of inventory to be stocked. We use a newsvendor-type model in which actual sales depend on the...

We study optimal incentive contracts for workers who are reciprocal to management attention. When neither worker's effort nor manager's attention can be contracted, a double moral-hazard problem arises, implying that reciprocal workers should be given weak financial incentives. In a...

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 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...

This study adopts behavioral contract theory through a mathematical model and clarifies the situation in which a fixed–salary contract is preferable to incentives–based one for the principal. Theoretically, the expected utility for the principal is higher under an incentives–based contract...

Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which...

This paper derives continuous-time conditions for a manager compensated with a call option to increase risk-taking. We show that the principles proposed by Ross (2004) in a one-period environment remain valid in continuous time

We develop a cost-benefit tradeoff model to explain corporate boards' decision whether to use compensation peer benchmarking. Peer benchmarking helps a board retain a talented but risk-averse CEO, but it weakens CEO incentives to exert effort. Consistent with high retention needs, benchmarking...