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Title:The Determinants of Salary and Bonus for Rank and File Employees PDF Logo
Authors:Demougin, Dominique M.
Fabel, Oliver
Issue Date:2004
Series/Report no.:Diskussionsbeiträge: Serie 1, Universität Konstanz, Fachbereich Wirtschaftswissenschaften 327
Abstract: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.
Subjects:White-Collar Employees
Implicit Contract
Explicit Bonus
Reputational Equilibrium
Persistent Identifier of the first edition:urn:nbn:de:bsz:352-opus-13044
Document Type:Working Paper
Appears in Collections:Diskussionsbeiträge, Serie I: Volkswirtschaftliche Beiträge, Universität Konstanz

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