Firm Performance Pay as Insurance against Promotion Risk

• 成果类型: Article
• 署名作者: Chen, Alvin
• 署名单位: Stockholm School of Economics
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13379
• 发表日期: 2024
• 关键词: EMPLOYEE STOCK-OPTIONS; RANK-ORDER TOURNAMENTS; internal economics; LAW FIRM; incentives; COMPETITION; diversification; COMPENSATION; retention; DISCOVERY

摘要

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.