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Variable pay: Is it for the worker or the firm?

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james_thompson.pdf (876.16 KB)

Date

2019-10

Authors

Allen, Jason
Thompson, James R.

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

Why do firms pay their workers with variable pay? The standard explanation appeals to a problem that the worker faces, e.g., agency. We develop a model of variable pay endogenously driven by the capital structure problem of the firm, and not a worker related problem. If workers face a low probability of job termination, firms use more variable pay, and more leverage. This can have important implications for understanding compensation practices in organizations. We provide empirical evidence consistent with firms using variable pay to increase leverage.

Description

The final publication is available at Elsevier via https://doi.org/10.1016/j.jcorpfin.2019.07.0040. © 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

worker compensation, leverage

LC Keywords

Citation

URI

https://doi.org/10.1016/j.jcorpfin.2019.07.004
 http://hdl.handle.net/10012/15715

Collections

Waterloo Research
Accounting and Finance