Incentives in managerial compensation : a survey of experimental research

The issue of designing effective managerial incentives has recently gained considerable attention in both theoretical analysis and business practices. Despite the importance of the theoretical achievements, to date little attempt has been made to test empirically the major theoretical hypotheses underlying incentive theories. More recently, the debate has been fuelled by the development of economic experimental studies explicitly designed to investigate how real decision makers subject to economic incentives behave. The aim of this paper is to provide a comprehensive survey of experimental contributions to con- tract and incentive design issues and to offer some suggestions for future research.