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Bonus Season: A Theory of Periodic Labor Markets and Coordinated Bonuses

Author

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  • Edward D. Van Wesep

    (University of Colorado at Boulder, Leeds School of Business, Boulder, Colorado 80302)

  • Brian Waters

    (University of Colorado at Boulder, Leeds School of Business, Boulder, Colorado 80302)

Abstract

We present a general equilibrium model in which firms and workers coordinate compensation so that turnover is high in some periods and low in others. This ensures that firms and workers typically search for new matches when other firms and workers are available. If firms and workers find themselves in a periodic equilibrium, contracts often feature large bonuses paid just prior to periods of high labor market turnover. The theory’s predictions match stylized facts concerning compensation and turnover in high finance and biglaw.

Suggested Citation

  • Edward D. Van Wesep & Brian Waters, 2022. "Bonus Season: A Theory of Periodic Labor Markets and Coordinated Bonuses," Management Science, INFORMS, vol. 68(7), pages 5464-5492, July.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:7:p:5464-5492
    DOI: 10.1287/mnsc.2021.4076
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    References listed on IDEAS

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