Why, in the Labor Market, Are Contracts Often Designed to Include

Multiple Choice

Why, in the labor market, are contracts often designed to include a variable salary component that is tied to some measure of performance?

A) Such contracts are considered the fairest to employees under fair labor standard laws.
B) Most people are risk-averse and thus variability in their compensation leads to higher total utility.
C) Firms use such contracts to differentiate between high- and low-quality workers.
D) These contracts tend to attract employees with the lowest probability of switching jobs.