Recent Trends in Compensation Practices

26 Pages Posted: 4 Nov 1999

See all articles by David E. Lebow

David E. Lebow

Board of Governors of the Federal Reserve System

Louise Sheiner

Board of Governors of the Federal Reserve System; National Bureau of Economic Research (NBER)

Larry Slifman

Board of Governors of the Federal Reserve System

Martha Starr

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 1999

Abstract

According to some accounts, compensation practices have recently been undergoing marked changes, with an increasing number of firms said to be substituting lump-sum payments for regular pay increases, allowing for greater variability of remuneration across individuals or groups, and making greater use of profit sharing or stock options. Many of these practices are outside the scope of the typical measures of economywide compensation growth. Moreover, intensified use of these schemes ought to heighten the responsiveness of overall compensation costs to business conditions and could also, in theory, boost productivity. We find that the spreading use of these practices could be leading to an understatement of the annual growth rate of actual employment costs (relative to the published employment cost index) that is not insignificant--perhaps on the order of three-tenths of a percentage point currently. Moreover, the changes have apparently helped to increase the flexibility of pay both across time and across workers. In addition, by linking pay more closely to performance, the firms we contacted seemed to think that their employees were working more efficiently and with an eye to enhancing the "bottom line" of the company.

JEL Classification: J33

Suggested Citation

Lebow, David E. and Sheiner, Louise and Slifman, Larry and Starr, Martha, Recent Trends in Compensation Practices (July 15, 1999). Available at SSRN: https://ssrn.com/abstract=186131 or http://dx.doi.org/10.2139/ssrn.186131

David E. Lebow (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Louise Sheiner

Board of Governors of the Federal Reserve System ( email )

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National Bureau of Economic Research (NBER)

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Larry Slifman

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Martha Starr

Independent

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