Earnings-based compensation contracts under asymmetric information

Miglo, A

Abstract

We analyse a model with two-dimensional asymmetric information in which the employer has better information about the firm's earnings potential. The employee's contract consists of an annual bonus and stock options. We explain (1) how different degrees of asymmetric information about short-term earnings versus long-term earnings affect optimal contracts and (2) why firms offering more options have higher short-term performance and lower long-term performance. This provides new insights into the structure of earnings-based compensation.

Citation

Miglo, A. (2009). Earnings-based compensation contracts under asymmetric information. Manchester School, 77(2), 225-243. https://doi.org/10.1111/j.1467-9957.2008.02095.x

• Journal Article Type: Article
• Online Publication Date: Feb 17, 2009
• Publication Date: Mar 1, 2009
• Deposit Date: May 26, 2021
• Journal: The Manchester School
• Print ISSN: 1463-6786
• Electronic ISSN: 1467-9957
• Publisher: Wiley
• Volume: 77
• Issue: 2
• Pages: 225-243
• DOI: https://doi.org/10.1111/j.1467-9957.2008.02095.x
• Publisher URL: https://doi.org/10.1111/j.1467-9957.2008.02095.x
• Related Public URLs: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9957
• Additional Information: Access Information : The Accepted Manuscript for this article is available Open Access at http://www.open-access.bcu.ac.uk/6239/1/ManchesterNEW9.pdf