Under a Tournament Pay Scheme, the Pay Gap Between a Few

Multiple Choice

Under a tournament pay scheme, the pay gap between a few "winners" (those who receive big promotions) and other employees exceeds the productivity differences between these two groups. The reason firms might use such a scheme is that they

A) overestimate the productivity of those who receive big promotions and inadvertently pay them "too much."
B) gain tax advantages by paying a few workers large salaries and using fringe benefits to compensate the rest of the employees.
C) hope to raise the productivity of those who receive big promotions because marginal productivity adjusts to equal wages.
D) hope to raise the productivity of all other workers, who will work harder trying to gain a big promotion.