Relative Performance Pay and Executive Compensation in a Dynamic Principal-Multiple Agent Model

This paper studies the nature of dynamic optimal compensation schemes between shareholders and multiple executives in an environment with private information where executives receive a common productivity shock and can take private actions that affect their productivity. The nature of these optimal dynamic compensation schemes are compared with their static counterparts.The incentive schemes between shareholders and executives are modelled as contracting problems between one principal (shareholder) and multiple agents (executives).