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