Performance Evaluation, Managerial Hedging, and Contract Termination
研究委托人如何与代理人签订合同以经营企业，代理人利用私人交易市场组合对冲薪酬风险，合同在正常市场条件下降低终止风险但在负面冲击后增加终止可能性，最优合同结合绝对与相对绩效评估并通过动态递延薪酬账户实施。
We develop a dynamic model where a principal contracts with an agent to operate a firm. The agent, protected by limited liability, trades privately a market portfolio to hedge market risk in his compensation. When liquidation cost of the firm is proportional to its size, the principal manages the termination risk by loading the contract with a positive market component, which alleviates termination risk in normal market conditions but makes termination more likely after negative market shocks. The optimal contract displays a dynamic mixture of absolute and relative performance evaluations and is implemented using a dynamic deferred compensation account. This paper was accepted by Agostino Capponi, finance. Funding: Y. Huang acknowledges financial support from the Shanghai Institute of International Finance and Economics and Fudan University [Gao Feng Project]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4533 .