The Lazear Model

The Lazear Model is an economic theory that explains why firms sometimes give workers irregular paychecks, like bonuses or commissions, instead of steady wages. It suggests that paying employees in unpredictable ways motivates them to work harder because they take on more effort in hopes of earning bigger rewards when performance is high. This system aligns workers’ incentives with the company’s goals, encouraging productivity and effort. Essentially, it shows how varying compensation can influence employees’ motivation and performance, benefiting both the worker and the firm.