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The management of talent: Optimal contracting for selection and incentives

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  • Dana Foarta
  • Takuo Sugaya

Abstract

Optimally reallocating human capital to tasks is key for an organization to successfully navigate a transition. We study how to design employment contracts to allocate employees to different valuable projects within an organization given two simultaneous challenges: The employees have private information about their cost of effort, and they exert unobservable effort. The optimal contract menu pairs a higher probability of assignment to a valuable project with a lower bonus in case of success. In limited cases, a fixed salary may be offered to employees with high effort cost. We link our results to job design features encountered in practice.

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  • Dana Foarta & Takuo Sugaya, 2021. "The management of talent: Optimal contracting for selection and incentives," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 49-77, March.
    • Handle: RePEc:bla:randje:v:52:y:2021:i:1:p:49-77
    DOI: 10.1111/1756-2171.12361
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    1. Robert Dur & Heiner Schmittdiel, 2019. "Paid to Quit," De Economist, Springer, vol. 167(4), pages 387-406, December.

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