We analyze the interaction between intertemporal incentive contracts and search frictions associated with on-the-job search. In our model, agency problems call for wage contracts with deferred compensation. At the same time workers do on-the-job search. Deferred compensation improves workers'...

This paper analyzes the interaction between wage contracts with deferred compensation and worker turnover. While deferred compensation improves the workers' incentives to exert effort, it distorts turnover decisions. We show that deferred compensation is less attractive when overall turnover in...