Quotation Niemann, Rainer, Sailer, Mariana. 2021. Performance-Based Incentive Contracts under Asymmetric Taxation.


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Abstract

Bonus contracts are predominant in management remuneration. These contracts reward managers with variable payments in case of satisfactory performance. However, penalty contracts that include financial deductions in case of unsatisfactory performance are rarely used in practice despite their public demand. To evaluate their potential of incentive provision in a tax-world, we employ a discrete principal-agent model to examine how symmetric and asymmetric corporate taxation influence a company owner’s choice between performance-based remuneration contracts. We find that symmetric corporate taxation is neutral with respect to the decision between an optimal pre-tax benchmark, a bonus and a penalty contract. In contrast, asymmetric taxation distorts this decision and can make the previously optimal contract inferior to either the bonus or the penalty contract, underlining its potential in incentive provision.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Performance-Based Incentive Contracts under Asymmetric Taxation
Year 2021
URL https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3669875

Associations

People
Sailer, Mariana (Details)
External
Niemann, Rainer (Universität Graz, Austria)
Organization
Management Accounting and Control Group AB (Details)
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