Dynamic Compensation Contracts with Private Savings

• 成果类型: Article
• 署名作者: He, Zhiguo
• 署名单位: University of Chicago
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhs054
• 发表日期: 2012
• 页码: 1494
• 关键词: continuous-time; incentive contracts; security design; Hidden income; AGENCY; RENEGOTIATION

摘要

This article studies a dynamic agency problem in which a risk-averse agent can save privately. In the optimal contract, (i) cash compensations exhibit downward rigidity to failures; (ii) permanent pay raises occur when the agent's historical performance is sufficiently good; (iii) and when the agent is dismissed due to poor performance, he walks away with severance pay to support his post-firing consumption at the current compensation level. Thus, the theory can simultaneously explain the popularity of options-like compensation contracts and the increasing incidence of forced turnovers with sizeable severance pay.