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

Jason Allen and James Thompson ()

Journal of Corporate Finance, 2019, vol. 58, issue C, 551-566

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.

Keywords: Worker compensation; Leverage (search for similar items in EconPapers)
JEL-codes: G24 G32 J33 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:58:y:2019:i:c:p:551-566

DOI: 10.1016/j.jcorpfin.2019.07.004

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