Shabnam Electric Company expect you to implement a pay for performance incentive contract for its new CEO and four VPs. The five managers can either work really hard with 70 hours a week at a personal opportunity cost of AED. 200,000 in reduced personal entrepreneurship and increased stress related health care costs or they can reduce effort, thereby avoiding the personal costs.The CEO and VPs face three possible random outs=comes the probability of the company experiencing best luck is 30%, average luck is 40% and poor luck is 30%. Although the senior management team can distinguish the three states of luck as the quarter unfolds, the "compensation team" of the Board of Directors cannot do so. Once the board designs an incentive contract, soon thereafter the best, average or poor luck occurs and thereafter the senior managers decide to expend high or reduced work effort.One of the observable shareholder values listed below then results.

Best Luck Average Luck 40% Efforts 30% AED. AED. High Efforts 1,000,000,000 800,000,000 Reduced Efforts 800,000,000 500,000,000