Team incentives and bonus floors in relational contracts
Teamwork and team incentives are increasingly prevalent in modern organizations. Performance measures used to evaluate individuals’ contributions to teamwork are often non-verifiable. We study a principal-multi-agent model of relational (self-enforcing) contracts in which the optimal contract resembles a bonus pool. It specifies a minimum joint bonus floor the principal is required to pay out to the agents, and gives the principal discretion to use non-verifiable performance measures to both increase the size of the pool and to allocate the pool to the agents. The joint bonus floor is useful because of its role in motivating the agents to mutually monitor each other by facilitating a strategic complementarity in their payoffs. In an extension section, we introduce a verifiable team performance measure that is a noisy version of the individual non-verifiable measures, and show that the verifiable measure is either ignored or used to create a conditional bonus floor.
Duke Scholars
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Related Subject Headings
- Accounting
- 3502 Banking, finance and investment
- 3501 Accounting, auditing and accountability
- 1501 Accounting, Auditing and Accountability
Citation
Published In
DOI
ISSN
Publication Date
Volume
Issue
Start / End Page
Related Subject Headings
- Accounting
- 3502 Banking, finance and investment
- 3501 Accounting, auditing and accountability
- 1501 Accounting, Auditing and Accountability