Worker Runs

49 Pages Posted: 18 Jul 2022

See all articles by Florian Hoffmann

Florian Hoffmann

KU Leuven

Vladimir Vladimirov

University of Amsterdam Business School; Centre for Economic Policy Research (CEPR)

Date Written: June 30, 2022

Abstract

The voluntary departure of hard-to-replace skilled workers worsens firm prospects, thus, increasing remaining workers' incentives to leave. We develop a model of collective turnover in which firms design compensation to limit the risk of such "worker runs." To achieve cost-efficient retention, firms may use fixed or dilutable variable pay -- such as stock option/bonus pools -- that promises remaining workers more when others leave but gets diluted otherwise. The optimal mix of fixed and dilutable pay depends on firms' relative risk exposure and their financial constraints. Compensating (identical) workers differently and financing investments with debt can improve collective retention.

Keywords: Compensation structure of non-executive employees, high-skilled employees, contagious turnover, worker runs, worker bargaining power, financing labor.

JEL Classification: G32, M52, J54, J33

Suggested Citation

Hoffmann, Florian and Vladimirov, Vladimir, Worker Runs (June 30, 2022). Available at SSRN: https://ssrn.com/abstract=4150240 or http://dx.doi.org/10.2139/ssrn.4150240

Florian Hoffmann

KU Leuven ( email )

Naamsestraat 69
Box 3525
Leuven, 3000
Belgium

HOME PAGE: http://www.florian-hoffmann.com

Vladimir Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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