Subjective Performance Measures in Optimal Incentive Contracts

@inproceedings{Baker1992SubjectivePM,
  title={Subjective Performance Measures in Optimal Incentive Contracts},
  author={George Baker and Robert Gibbons and Jeanette Murphy},
  year={1992}
}
Objective measures of performance are seldom perfect. In response, incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures in (respectively) implicit and explicit incentive contracts. Naturally, objective and subjective measures often are substitutes, sometimes strikingly so: we show that if objective measures are… CONTINUE READING
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