Abstract

This paper is an exploratory study examining the willingness of employees to deferral their salary and the affect such an act has on the survival rate and sustainability of new firms. The employees initially hired by new firms are relied upon heavily to design and build the firm’s first products. In return for their assistance, these employees require compensation from the firm. Higher qualified employees require higher compensation than lower qualified employees or they will possibly leave the firm (Mincer, 1962; Becker, 1965). However, new firms have trouble accessing financial capital (Ang, 1991; Berger and Udell, 1998), and thus have difficulty paying higher wages. New firms thus resort to using bootstrapping methods to stay alive (Van Auken and Neeley, 1996). Bootstrapping methods entail a set of processes through which firms creatively find resources, increase resource efficiency, and minimize explicit costs (Bhide, 1992; Freear, Sohl and Wetzel, 1995; Winborg and Landstrom, 2001). A bootstrapping option that is being seen as an interim fix to the firm’s cash flow issues is employee salary deferment. If employees are willing to defer their salaries for a limited period of time, then the firm could continue to operate and pursue the main funding options. Thus, we examine the research question, why are employees willing to defer their salaries when working with a new firm, and how salary deferral affects new firm survival?

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