Abstract
I analyse the use of fixed payment schemes when compensation for a group of agents may be based on both objective and subjective performance evaluations. Under purely subjective performance evaluation, the optimal compensation rule entails third-party payments if liability constrains contracting. Verifiable information can improve the contract even if it provides no additional information. For verifiable information to be valuable, unambiguous identification of good news is more important than identification of bad news. Third-party payments can be avoided if an objective measure unambiguously identifies good news. For a group of identical agents, the optimal fixed payment scheme is a tournament if the agents are risk neutral or are of decreasing strong absolute risk aversion.
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