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arXiv · 2504.21264

Effect of a Manager in Relational Contracts with Multiple Workers

Beomjun Kim
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Abstract

This paper considers the optimal management structure about hiring a manager and providing the manager with a separate salary and bonus using a relational contract among an owner, a manager, and workers, assuming that the manager can observe individual worker performances while the owner can observe only overall team performance. I derive optimal contracts for the two cases in which the manage's salary and bonus are integrated into total team bonus or provided separately. I compare situations of having the manager distribute bonuses based on individual worker performance to the situation of equal bonus distribution based on overall team performance without a manager. Only a contract with a manager who receives a separate bonus is feasible for low discount factor. Making the manager to distribute the salary and bonus including himself is best with intermediate discount factor. Providing an equal bonus without a manager is optimal with high discount factor.

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Beomjun Kim. 2025-04-30. Effect of a Manager in Relational Contracts with Multiple Workers. https://arxiv.org/abs/2504.21264

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