The Effect of Firm Compensation Structures on Employee Mobility and Employee Entrepreneurship of Extreme Employers

42 Pages Posted: 24 Mar 2010

See all articles by Seth Carnahan

Seth Carnahan

University of Michigan, Stephen M. Ross School of Business

Rajshree Agarwal

University of Maryland - Robert H. Smith School of Business

Benjamin A. Campbell

The Ohio State University - Fisher College of Business

April Franco

University of Toronto - Rotman School of Management; University of Toronto at Scarborough - Division of Management

Date Written: March 1, 2010

Abstract

Previous studies of employee entrepreneurship have not considered the rewards available to potential entrepreneurs inside of their current organizations. This study hopes to fill this gap by investigating how the firm’s compensation structure, an important strategic decision closely scrutinized by human resource management, affects the mobility and entrepreneurship decisions of its employees, particularly those employees at the extreme ends of the performance distribution. Using a comprehensive U.S. Census data set covering all employees in the legal services industry across ten states for fifteen years, we find that high performing employees are less likely to leave firms with highly dispersed compensation structures. However, if high performers do leave employers that offer highly disperse compensation structures, they are more likely to join new firms. Less talented employees, on the other hand, are more likely to leave firms with greater pay dispersion. Unlike high performers, we find that low performers are less likely to move to new ventures when departing firms with highly disperse compensation structures.

Suggested Citation

Carnahan, Seth and Agarwal, Rajshree and Campbell, Benjamin A. and Franco, April, The Effect of Firm Compensation Structures on Employee Mobility and Employee Entrepreneurship of Extreme Employers (March 1, 2010). US Census Bureau Center for Economic Studies Paper No. CES-WP-10-06. Available at SSRN: https://ssrn.com/abstract=1571139 or http://dx.doi.org/10.2139/ssrn.1571139

Seth Carnahan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Rajshree Agarwal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Benjamin A. Campbell (Contact Author)

The Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

April Franco

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

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