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Earnings-Based Bonus Compensation

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  • António Câmara
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    Abstract

    This article studies the cost of contingent earnings-based bonus compensation. We assume that the firm has normal and abnormal earnings. The normal earnings result from normal firm activities and are modeled as an arithmetic Brownian motion. The abnormal earnings result from surprising activities (e.g., introduction of an unexpected new product, an unexpected strike) and are modeled as a compound Poisson process where the earnings jump sizes have a normal distribution. We investigate, in a simple general equilibrium model, how normal and abnormal earnings affect the cost of contingent bonus compensation to the firm. Copyright (c) 2009, The Eastern Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2009.00226.x
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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 44 (2009)
    Issue (Month): 4 (November)
    Pages: 469-488

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    Handle: RePEc:bla:finrev:v:44:y:2009:i:4:p:469-488

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    Web page: http://www.easternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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