Prestige, promotion, and pay

We develop a theory in which financial (and other professional services) firms design career structures to “sell” prestigious jobs to qualified candidates. Firms create less prestigious entry-level jobs, which serve as currency for employees to pay for the right to compete for the more prestigious jobs. In optimal career structures, entry-level employees (“associates”) compete for better-paid and more prestigious positions (“managing directors” or “partners”). The model provides new implications relating job prestige to compensation, employment, competition, and the size of the financial sector.