In this paper, we propose a general continuous-time stochastic-modeling framework where a financial firm offers incentive bonuses to a team of employees, who would thus exert effort to reduce operational risk losses. We characterize employees' Nash equilibrium efforts and the firm's optimal...

Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based...