Negotiating Compensation

58 Pages Posted: 11 Jul 2022 Last revised: 1 Aug 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

We investigate compensation design in tight labor markets. With private information about firm productivity, firms prefer competing for workers by raising fixed wages. However, workers in better bargaining positions often prefer negotiating for higher bonuses or option pay. We characterize when such differences in preferred compensation structure occur and show that they determine whether workers extract higher compensation by negotiating as opposed to attracting additional job offers. Our analysis of negotiations and competition with endogenous compensation structure has implications for firms' external financing needs and investor base and extends to other applications such as mergers and acquisitions.

Keywords: Competition for workers, negotiations, financing wages, compensation structure of non-executive employees, high-skilled employees.

JEL Classification: G32, M52, J54, J33

Suggested Citation

Hoffmann, Florian and Vladimirov, Vladimir, Negotiating Compensation (June 30, 2022). Available at SSRN: https://ssrn.com/abstract=4150242 or http://dx.doi.org/10.2139/ssrn.4150242

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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