When one size does not fit all: Using ex post subjective ratings to provide parity in risk-adjusted compensation

Volume: 49, Pages: 100706 - 100706
Published: Dec 1, 2020
Abstract
Firms typically use a ‘one-size-fits-all’ (OSFA) compensation contract that specifies a common formulaic relation between performance and compensation (i.e., a performance bonus) for non-executive managers in similar jobs. However, a contract that is appropriate on average, may be suboptimal for individual managers if heterogeneity in the operating environment creates varying compensation risk. We use field data from a retail firm that...
Paper Details
Title
When one size does not fit all: Using ex post subjective ratings to provide parity in risk-adjusted compensation
Published Date
Dec 1, 2020
Volume
49
Pages
100706 - 100706
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