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Compensation Policy and Quit Rates: A Multilevel Approach Using Benchmarking Data



Using unique linked employee–employer benchmarking data, the paper estimates the impact of compensation policy on quit rates using multilevel models. The analysis examines several aspects of an organization’s compensation policy with a focus on the effect of pay dispersion between employees at the same level in the firm hierarchy, as well as pay dispersion throughout the hierarchy. Overall, the results indicate that firms with egalitarian pay structures have lower quit rates, a finding that is robust to a large set of empirical specifications.