EconPapers    
Economics at your fingertips  
 

How Much to Pay in Cash? Employee Retention via Stock Options

Ruslan Gurtoviy and Luis G. González

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: We model deferred compensation as a share of an uncertain future profit granted by a financially constrained employer to her employee in mutual agreement. Deferred compensation serves as a retention mechanism, helping the employer to avoid bankruptcy. The optimal combination of cash and deferred payments that a firm can use to retain qualified personnel depends on the cost of new credit and bank-ruptcy risk: If interest rates are greater (smaller) than the ex-ante odds of bankruptcy, the employer will to defer compensation (pay in cash) to the employee. The employee always improves his position in the labor market if imminent bankruptcy is avoided.

Keywords: Deferred Compensation; Employee Retention; Nash Bargaining (search for similar items in EconPapers)
JEL-codes: J32 J33 M12 M5 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-08
New Economics Papers: this item is included in nep-fin and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
ftp://papers.econ.mpg.de/esi/discussionpapers/2004-24.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Failed to connect to FTP server papers.econ.mpg.de: nodename nor servname provided, or not known

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:esi:discus:2004-24

Ordering information: This working paper can be ordered from
http://www.econ.mpg. ... arch/ESI/discuss.php

Access Statistics for this paper

More papers in Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group Contact information at EDIRC.
Bibliographic data for series maintained by Karin Richter ( this e-mail address is bad, please contact ).

 
Page updated 2025-07-15
Handle: RePEc:esi:discus:2004-24