Under a Tournament Pay Scheme, the Pay Gap Between a Few

question 77

Multiple Choice

Under a tournament pay scheme, the pay gap between a few "winners" (those who receive big promotions) and other employees exceeds the productivity differences between these two groups. The reason firms might use such a scheme is that they

• A) overestimate the productivity of those who receive big promotions and inadvertently pay them "too much."
• B) gain tax advantages by paying a few workers large salaries and using fringe benefits to compensate the rest of the employees.
• C) hope to raise the productivity of those who receive big promotions because marginal productivity adjusts to equal wages.
• D) hope to raise the productivity of all other workers, who will work harder trying to gain a big promotion.

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