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Negotiating Compensation

Author

Listed:
  • Hoffmann, Florian
  • Vladimirov, Vladimir

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.

Suggested Citation

  • Hoffmann, Florian & Vladimirov, Vladimir, 2022. "Negotiating Compensation," CEPR Discussion Papers 17418, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17418
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    More about this item

    Keywords

    Competition for workers; Negotiations; Financing wages; Compensation structure of non-executive employees; High-skilled employees;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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