Deferred Compensation and Turnover

25 Pages Posted: 22 Aug 2006

See all articles by Espen R. Moen

Espen R. Moen

Norwegian Business School; Centre for Economic Policy Research (CEPR)

Asa Rosen

Stockholm University - Swedish Institute for Social Research (SOFI); University of Oslo

Date Written: August 17, 2006

Abstract

This paper analyzes the interaction between wage contracts with deferred compensation and worker turnover. While deferred compensation improves the workers' incentives to exert effort, it distorts turnover decisions. We show that deferred compensation is less attractive when overall turnover in the market is high. Furthermore, we may have multiple equilibria: a low-turnover equilibrium where firms use deferred compensation to motivate workers, and a high-turnover equilibrium where they do not. Our model provides an explanation for observed differences in turnover rates between countries, e.g., US and Japan and between regions, e.g., Silicon Valley and Route 128.

Keywords: Deferred Compensation, Incentive Contracts, Multiple Equilibria, Turnover

JEL Classification: J33, J41, J63

Suggested Citation

Moen, Espen R. and Rosen, Asa and Rosen, Asa, Deferred Compensation and Turnover (August 17, 2006). Available at SSRN: https://ssrn.com/abstract=925673 or http://dx.doi.org/10.2139/ssrn.925673

Espen R. Moen (Contact Author)

Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410786 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Asa Rosen

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

SE-106 91 Stockholm
Sweden
+46 8 163 641 (Phone)
+46 8 754 670 (Fax)

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

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