Capital Structure, Pay Structure and Job Termination Staff working paper 2016-12 Jason Allen, James R. Thompson We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral. Content Type(s): Staff research, Staff working papers JEL Code(s): G, G2, G24, J, J3, J33 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Household and business credit, Models and tools, Economic models