Work

Firm Performance Pay as Insurance against Promotion Risk

Year: 2020

Type: article

Abstract: ABSTRACT The prevalence of pay based on risky firm outcomes for nonexecutive workers presents a puzzling departure from conventional contract theory, which predicts insurance provision by the firm. When workers at the same firm compete against each other for promotions, the optimal contract features pay based on firm outcomes as insurance against promotion risk. The model's predictions are consistent with many observed phenomena, such as performance‐based vesting and overvaluation of equity pay by nonexecutive workers. It also generates novel predictions linking a firm's hierarchy to its workers' pay structure.

Source: The Journal of Finance

DOI: 10.1111/jofi.13379

Author: ALVIN CHEN

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,500

OpenAlex ID: W4401555200

FWCI: 0.931

Cites: 74

Cited by: 7

Related to: 10