Prestige, Promotion, and Pay
Journal of Finance forthcoming
61 Pages Posted: 26 Dec 2017 Last revised: 16 Feb 2023
Date Written: December 17, 2021
Abstract
We develop a theory in which financial (and other professional services) firms design career structures to "sell" prestigious jobs to qualified candidates. Firms create less-prestigious entry-level jobs, which serve as currency for employees to pay for the right to compete for the more prestigious jobs. In optimal career structures, entry-level employees ("associates") compete for better paid and more prestigious positions ("managing directors" or "partners"). The model provides new implications relating job prestige to compensation, employment, competition, and the size of the financial sector.
Keywords: Job Prestige, Span of Control, Professional Careers, Financial Services Firms
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