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Recent trends in compensation practices

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Author Info

  • David Lebow
  • Louise Sheiner
  • Larry Slifman
  • Martha Starr-McCluer

Abstract

According to some accounts, compensation practices have recently been undergoing marked changes, with an increasing number of firms said to be substituting lump-sum payments for regular pay increases, allowing for greater variability of remuneration across individuals or groups, and making greater use of profit sharing or stock options. Many of these practices are outside the scope of the typical measures of economy-wide compensation growth. Moreover, intensified use of these schemes ought to heighten the responsiveness of overall compensation costs to business conditions and could also, in theory, boost productivity. We find that the spreading use of these practices could be leading to an understatement of the annual growth rate of actual employment costs (relative to the published employment cost index) that is not insignificant--perhaps on the order of three-tenths of a percentage point currently. Moreover, the changes have apparently helped to increase the flexibility of pay both across time and across workers. In addition, by linking pay more closely to performance, the firms we contacted seemed to think that their employees were working more efficiently and with an eye to enhancing the "bottom line" of the company.

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File URL: http://www.federalreserve.gov/pubs/feds/1999/199932/199932abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1999/199932/199932pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-32.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-32

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Related research

Keywords: Wages ; Stocks;

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Cited by:
  1. Robert W. Rich & Donald Rissmiller, 2001. "Structural change in U.S. wage determination," Staff Reports 117, Federal Reserve Bank of New York.
  2. Karnizova Lilia, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-50, June.
  3. Hamid Mehran & Joseph Tracy, 2001. "The effect of employee stock options on the evolution of compensation in the 1990s," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 17-34.
  4. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," NBER Working Papers 11628, National Bureau of Economic Research, Inc.
  5. Derek Jones & Panu Kalmi & Mikko Mäkinen, 2010. "The productivity effects of stock option schemes: evidence from Finnish panel data," Journal of Productivity Analysis, Springer, vol. 33(1), pages 67-80, February.
  6. Hamid Mehran & Joseph Tracy, 2001. "The Impact of Employee Stock Options on the Evolution of Compensation in the 1990s," NBER Working Papers 8353, National Bureau of Economic Research, Inc.

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