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Consider a compensation contract using quotas: a firm pays its manager a low wage if output is below a target value and a high wage


Consider a compensation contract using quotas: a firm pays its manager a low wage if output is below a target value and a high wage if output meets or exceeds the target level. For instance, paying 50,000 RMB for the whole year if output is below 1,000 units of output, but paying 100,000 RMB for the whole year if output meets or exceeds 1,000 units. Comment on the potential issues for using this quota-compensation contract and propose a numerical salary-plus-commission compensation contract to resolve these potential issues. Explain answer.

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Using a quotacompensation contract like the one described can present several potential issues 1 Risk of Manipulation Managers may resort to unethical ... blur-text-image

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