Working Paper: CEPR ID: DP17418
Authors: Florian Hoffmann; Vladimir Vladimirov
Abstract: We investigate compensation design in tight labor markets. With private information about firm productivity, firms prefer competing for workers by raising fixed wages. However, workers in better bargaining positions often prefer negotiating for higher bonuses or option pay. We characterize when such differences in preferred compensation structure occur and show that they determine whether workers extract higher compensation by negotiating as opposed to attracting additional job offers. Our analysis of negotiations and competition with endogenous compensation structure has implications for firms' external financing needs and investor base and extends to other applications such as mergers and acquisitions.
Keywords: competition for workers; negotiations; financing; wages; compensation structure of non-executive employees; high-skilled employees
JEL Codes: G32; M52; J54; J33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm compensation strategy (L21) | worker attraction (J29) |
| worker bargaining power (J52) | preferred compensation structure (M52) |
| firm competition (L13) | compensation structure (M52) |
| worker preferences (J29) | firm competition (L13) |
| negotiation strategy (C78) | expected compensation (J33) |
| worker skills (J24) | negotiation outcomes (C78) |