Managerial Delegation Theory Revisited

This paper challenges the results of the “classical” managerial delegation literature, where it is assumed that the weight of the managerial bonus only depends on the owner’s will to maximise his own profits. By considering sales (S) (resp. relative profit (RP)) contracts, the received literature has found that (S,S) (resp. (RP,RP)) is the unique pure-strategy sub-game perfect Nash equilibrium in a game that contrasts S (resp. RP) with pure profit maximisation (PM). This paper shows that none of the previous results may not hold when the owner negotiates about managerial compensation with his manager.