Bengt Holmstrom and Oliver Hart share the Nobel Prize in Economic Sciences for 2016, awarded to them by Sveriges Riksbank. They have been rewarded for their work in enhancing the design of contracts, i.e. arrangements connecting employers with employees or companies with clients, in other words, for their contribution to contract theory in the 1970s and 1980s. Their analysis of optimal contractual arrangements lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions. Holmstrom conducted a deeper analysis of performance-based payments, specifically the cases when the invested efforts and labor cannot always be properly assessed. Holmstrom's work, started in the late 1970s, presented the evidence that companies should tie the payments to the broadest possible assessment of their employees' performance. His later work focused on the advantages provided by easily understandable contracts covering the basic aspects of salary alongside the limited incentives.