Prestige, Promotion, and Pay

We develop a theory in which financial (and other professional services) firms design career structures to “sell” prestigious jobs to qualified candidates. Firms create inefficient entry-level jobs, whose only function is to serve as currency for employees to pay for the right to compete for the prestigious jobs. In optimal structures, entry-level employees (“associates”) compete for better paid and more prestigious positions (“managing directors” or “partners”). Our model shows how the span of control is affected by prestige, productivity, and competition. The model provides new implications relating job prestige to compensation, employment, inequality, and the size of the financial sector