Subjectivity in Compensation Contracting

This paper examines the role of subjectivity in compensation contracting. The main focus of the compensation contracting literature has traditionally been on explicit compensation contracts of workers whose individual contribution is relatively easy to observe. These studies have provided important insights into incentive provision and contract design. Although many of these insights remain valid when compensation contracts include subjectivity, supervisor discretion introduces many additional issues. This paper summarizes and synthesizes extant research on subjectivity in compensation contracting, and provides new insights that will help stimulate future research.

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