Design of Incentive Mechanism for Independent Directors Based on Monitoring Mechanism under Asymmetric Information Condition

The incentive mechanism for independent directors has yet to be established so far. Through mathematical models and game theory, this paper analyzes the optimal incentive contracts between stockholders and independent directors under asymmetric information condition in order to solve the problems in establishing incentive mechanism for independent directors. Supervision mechanism is introduced and analyzed in the design of incentive mechanism. It expands the theoretical frame for incentive mechanism. The results are as follows: Supervision mechanism is related and complementary with incentive mechanism. Both can encourage or guide the agent to work hard towards common goals. Therefore, the function of the incentive mechanism and the supervision mechanism should be considered simultaneously in the design of incentive contract. Introduction of supervision mechanism into incentive mechanism not only results in theoretical innovation, but also has great application value in practice.