December 9, 2019, 12:30–14:00
This paper studies how competition for skilled workers affects workers compensation structure. Compensation structure below executive level matters, because it affects firms financing needs and the risk of worker runs (workers leaving because others are leaving). Yet individual workers only partially internalize these externalities when negotiating their compensation. Worker's main concern is extracting the highest compensation, which may require comparing different types of offers made by firms with different bargaining power. Specifically, firms with weaker bargaining positions offer equity-based compensation. Otherwise, firms offer fixed wages secured by debt financing. The model explains evidence relating compensation structure to worker bargaining power.