Suppose that a firm offers a divisional manager a linear pay-for-performance contract based on the revenues of
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Suppose that a firm offers a divisional manager a linear pay-for-performance contract based on the revenues of the division the manager leads. The manager’s pay includes a fixed yearly salary F and a fraction of the division’s revenue that is paid to the manager. Suppose that the demand for this type of divisional manager increases, meaning that the firm has to increase this manager’s pay in order to retain her. Should the firm do this by increasing the salary F, the commission , or both? Explain.
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Economics Of Strategy
ISBN: 9781118273630
6th Edition
Authors: David Besanko, David Dranove, Scott Schaefer, Mark Shanley
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