Variable pay: Is it for the worker or the firm?
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Allen, Jason
Thompson, James R.
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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.
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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/
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Except where otherwise noted, this item's license is described as Attribution-NonCommercial-NoDerivatives 4.0 International