The Construction of the Non-Material Incentive Model for the Firm Operator’s Compensation Contract in China

Biao Luo, Shan-Shan Zheng, Hong-Mei Ji, Chao Gong

School of Business, Anhui University, Hefei, China..
School of Management, University of Science and Technology of China, Hefei, China.

DOI: 10.4236/jssm.2012.53035                

Abstract

Effective compensation contract is the most driving force that encourages the operator of the firm to work hard. This article, considering the ability of the operator, built a model of compensation contract with some explanatory variables, such as effort level and risk attitude of the operator, coefficient of input flexibility, and coefficient of discount. Then, it tried to use the principal-agent theory to solve the model of explicit function, and analyzed the model based on material incentive and non-material incentive in the mechanism of profit sharing; the conclusion had important practical significance for the firm to implement the performance management.

Keywords

Compensation Contract; Material Incentive; Non-Material Incentive; Incentive Mechanism

Conflicts of Interest

The authors declare no conflicts of interest.

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