Contracting with Disagreement about Performance Evaluation and Compensation

39 Pages Posted: 6 Nov 2012 Last revised: 24 Mar 2015

See all articles by Anqi Li

Anqi Li

Washington University in St. Louis

Date Written: March 2015

Abstract

I examine incentive contracting with an agent who disagrees with the principal and creates organizational frictions when the actual performance evaluation and compensation fall short of what he thinks he should earn. Results show that seemingly rigid policies, such as long-term performance evaluations, compressed compensation schemes and seniority-based promotions, are robust tools for providing incentives and managing disagreements especially when the principal does not know the exact mechanism of disagreement formation.

Keywords: reference-dependence, robust incentive, firm's internal organization

JEL Classification: D86, D82, D03

Suggested Citation

Li, Anqi, Contracting with Disagreement about Performance Evaluation and Compensation (March 2015). Available at SSRN: https://ssrn.com/abstract=2171516 or http://dx.doi.org/10.2139/ssrn.2171516

Anqi Li (Contact Author)

Washington University in St. Louis ( email )

Department of Economics
One Brookings Drive
St. Louis, MO 63130
United States

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