Journal of Financial Economics Vol. 126 No. 2 2017
Employee bargaining power, inter-firm competition, and equity-based compensation
Abstract
We develop a model to illustrate that equity-based compensation for non-executive employees and product market decisions are related. When the product market is competitive and employees have low bargaining power , the unique equilibrium is for each firm’s owners to offer equity-based compensation to their employees. In this setting, equity-based compensation leads to a lower wage rate, which makes each firm more competitive with its rival. However, this unique equilibrium is a Prisoner’s Dilemma for the firms’ original owners. Our results are consistent with several empirical regularities and provide predictions on when firms will offer equity-based compensation to their employees.
- DOI
- 10.1016/j.jfineco.2017.07.006
- Volume
- 126
- Issue
- 2
- Pages
- 342-363
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex