Suppose that you are designing the compensation contract for the Chicago Bulls’ new coach. Two main alternatives are possible. In

(a) you will design his bonus based on the total number of wins during the season and the team’s success during the playoffs and will ignore any specific decisions made by the coach. In

(b) you will consider the specific measures taken by the coach and, perhaps with the help of independent outside experts, will base the compensation on the quality of those decisions but will ignore the number of wins during the season. Explain the advantages and disadvantages of the two compensation contracts.

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