Discretion in Managerial Bonus Pools

Discretion in Managerial Bonus Pools

By
Merle Ederhof, Madhav V. Rajan, Stefan J. Reichelstein
Foundations and Trends in Accounting.
2011, Vol. 5, Issue 4, Pages 243-316

Discretion in Managerial Bonus Pools synthesizes and integrates a growing literature that has emerged over the past 10-15 years on the use of both objective and subjective performance indicators in managerial incentive plans. The authors examine the structure of efficient bonus pools (fixed payment schemes) in the presence of subjective performance indicators. The analysis covers a range of scenarios including single- and multi-agent settings, the interplay of objective and subjective indicators and short-term as opposed to long-term contracting relations.