A synthesis of profit-sharing and efficiency wage models is constructed to provide a preliminary account of how a firm determines its pay parameters, and why it chooses to be a profit-sharing or a fixed-wage firm. The properties of the worker's effort function crucially influence the firm's choices between different compensation systems, and that the adoption of a profit-sharing scheme cannot guarantee the attainment of full mployment. Other findings of the paper also seem to be very different from those of Weitzman's share model.
