Variable pay, defined as pay that is tied to some measure of a firm's output, has become more important for executives of the typical American firm. Variable pay is usually touted as a way to provide incentives to managers whose interests may not be perfectly aligned with those of owners. The...

In this paper, we display the tools and principles of personnel economics through a series of models aimed at addressing the questions posed above. We focus on the building blocks that form the foundation of personnel economics: the assumptions that both the worker and the firm are rational...