Resource title

The Determinants of Salary and Bonus for Rank and File Employees

Resource image

image for OpenScout resource :: The Determinants of Salary and Bonus for Rank and File Employees

Resource description

The current study integrates the repeated game approach to implicit contracts and the analysis of explicit bonus rules based on subjective performance evaluation to determine the optimal structure of the compensation scheme for the average white- collar employee. In contrast to previous contributions we assume that the agent is risk-neutral but liquidity constrained. The salary reflects the maximum reward associated with contractual compliance which can be implicitly agreed. If the probability that the employee remains within the firm increases, the principal can reduce the rent captured by the agent. Hence, the optimal salary increases and the bonus decreases. Nevertheless, the optimal e¤ort supply unambiguously increases.

Resource author

Dominique M. Demougin, Oliver Fabel

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/23023

Resource license

Adapt according to the presented license agreement and reference the original author.