Does Deferred Compensation Increase Worker Effort?

24 Pages Posted: 21 Apr 2011

See all articles by Scott J. Adams

Scott J. Adams

University of Wisconsin - Milwaukee - Department of Economics

John S. Heywood

University of Wisconsin at Milwaukee

Date Written: June 1, 2011

Abstract

This paper presents a model illustrating that deferred compensation increases effort (reduces shirking) by increasing the cost of job loss. Importantly, the size of this increase in effort shrinks as the chance of exogenous job separation grows. The paper tests the model's predictions using both US and Australian data. In both countries we find empirical results consistent with the model's predictions. Deferred compensation, as identified either by pensions or by steeper tenure wage profiles, is associated with greater self-reported worker effort. Moreover, when the probability of job separation is greater, the influence of deferred compensation diminishes.

Suggested Citation

Adams, Scott J. and Heywood, John S., Does Deferred Compensation Increase Worker Effort? (June 1, 2011). The Manchester School, Vol. 79, No. 3, pp. 381-404, 2011, Available at SSRN: https://ssrn.com/abstract=1817143 or http://dx.doi.org/10.1111/j.1467-9957.2009.02157.x

Scott J. Adams (Contact Author)

University of Wisconsin - Milwaukee - Department of Economics ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States
414-229-4212 (Phone)

John S. Heywood

University of Wisconsin at Milwaukee ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States
414-229-4437 (Phone)
414-229-3860 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
504
PlumX Metrics