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The Effect of Firm Compensation Structures on Employee Mobility and Employee Entrepreneurship of Extreme Performers

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  • Seth Carnahan
  • Rajshree Agarwal
  • Benjamin Campbell
  • April Franco
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    Abstract

    Previous studies of employee entrepreneurship have not considered the rewards available to potential entrepreneurs inside of their current organizations. This study hopes to fill this gap by investigating how the firm’s compensation structure, an important strategic decision closely scrutinized by human resource management, affects the mobility and entrepreneurship decisions of its employees, particularly those employees at the extreme ends of the performance distribution. Using a comprehensive U.S. Census data set covering all employees in the legal services industry across ten states for fifteen years, we find that high performing employees are less likely to leave firms with highly dispersed compensation structures. However, if high performers do leave employers that offer highly disperse compensation structures, they are more likely to join new firms. Less talented employees, on the other hand, are more likely to leave firms with greater pay dispersion. Unlike high performers, we find that low performers are less likely to move to new ventures when departing firms with highly disperse compensation structures.

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    File URL: ftp://ftp2.census.gov/ces/wp/2010/CES-WP-10-06.pdf
    File Function: First version, 2010
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 10-06.

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    Length: 41 pages
    Date of creation: Mar 2010
    Date of revision:
    Handle: RePEc:cen:wpaper:10-06

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    Cited by:
    1. Cui, Victor & Ding, Waverly W. & Yanadori, Yoshio, 2011. "Compensation Structure and the Creation of Exploratory Knowledge in Technology Firms," Institute for Research on Labor and Employment, Working Paper Series qt4f7671kn, Institute of Industrial Relations, UC Berkeley.

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