Editing Principal–agent problem (section)

===Deferred compensation===
Tournaments represent one way of implementing the general principle of "deferred compensation", which is essentially an agreement between worker and firm to commit to each other. Under schemes of deferred compensation, workers are overpaid when old, at the cost of being underpaid when young. Salop and Salop (1976) argue that this derives from the need to attract workers more likely to stay at the firm for longer periods, since turnover is costly. Alternatively, delays in evaluating the performance of workers may lead to compensation being weighted to later periods, when better and poorer workers have to a greater extent been distinguished. (Workers may even prefer to have wages increasing over time, perhaps as a method of forced saving, or as an indicator of personal development. e.g., Loewenstein and Sicherman 1991, Frank and Hutchens 1993.) For example, Akerlof and Katz 1989: if older workers receive efficiency wages, younger workers may be prepared to work for less in order to receive those later. Overall, the evidence suggests the use of deferred compensation (e.g., Freeman and Medoff 1984, and Spilerman 1986—seniority provisions are often included in pay, promotion and retention decisions, irrespective of productivity.)