IDEAS home Printed from https://ideas.repec.org/p/esi/discus/2004-24.html
   My bibliography  Save this paper

How Much to Pay in Cash? Employee Retention via Stock Options

Author

Listed:
  • Ruslan Gurtoviy
  • Luis G. González

Abstract

We model deferred compensation as a share of an uncertain future profit granted by a financially constrained employer to her employee in mutual agreement. Deferred compensation serves as a retention mechanism, helping the employer to avoid bankruptcy. The optimal combination of cash and deferred payments that a firm can use to retain qualified personnel depends on the cost of new credit and bank-ruptcy risk: If interest rates are greater (smaller) than the ex-ante odds of bankruptcy, the employer will to defer compensation (pay in cash) to the employee. The employee always improves his position in the labor market if imminent bankruptcy is avoided.

Suggested Citation

  • Ruslan Gurtoviy & Luis G. González, 2008. "How Much to Pay in Cash? Employee Retention via Stock Options," Papers on Strategic Interaction 2004-24, Max Planck Institute of Economics, Strategic Interaction Group.
  • Handle: RePEc:esi:discus:2004-24
    as

    Download full text from publisher

    File URL: ftp://papers.econ.mpg.de/esi/discussionpapers/2004-24.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gantner, Anita & Guth, Werner & Konigstein, Manfred, 2001. "Equitable choices in bargaining games with joint production," Journal of Economic Behavior & Organization, Elsevier, vol. 46(2), pages 209-225, October.
    2. Core, John E. & Guay, Wayne R., 2001. "Stock option plans for non-executive employees," Journal of Financial Economics, Elsevier, vol. 61(2), pages 253-287, August.
    3. Guido Friebel & Sergei Guriev, 1999. "Why Russian Workers Do Not Move: Attachment of Workers Through In-Kind Payments," William Davidson Institute Working Papers Series 283, William Davidson Institute at the University of Michigan.
    4. Paul Oyer, 2004. "Why Do Firms Use Incentives That Have No Incentive Effects?," Journal of Finance, American Finance Association, vol. 59(4), pages 1619-1650, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Deferred Compensation; Employee Retention; Nash Bargaining;

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:esi:discus:2004-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karin Richter). General contact details of provider: http://edirc.repec.org/data/mpiewde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.