Effect of a Manager in Relational Contracts with Multiple Workers
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.
Cite
@article{arxiv.2504.21264,
title = {Effect of a Manager in Relational Contracts with Multiple Workers},
author = {Beomjun Kim},
journal= {arXiv preprint arXiv:2504.21264},
year = {2025}
}