1. 1 Tournament Pay In this section we consider thinking about pay at firms as being similar to what happens at a sports tournament.

2. 2 Years on Job – Job Tenure $ Tom Dick Harry All three here Just Harry and Dick

3. 3 On the previous screen we see the earnings profile of three workers. They all started at the same time and they all have increases in pay over their working life. At the beginning the each make the same, but then their pay diverges. Harry’s pay outpaces the other two. The story is that Tom, Dick and Harry are in a tournament to get promotions within the firm. The winner at each stage of the tournament gets the higher bump in pay. Implication Perhaps high CEO pay is an incentive to get lower level managers to strive to be a CEO. We need CEO’s right? Lots of work though. How do you get people to work a lot? Pay them. Maybe the pay is higher than their current productivity, but the pay was needed to get them to work and gain skills and knowledge along the way.