to an efficient market outcome. Organizations with more of a team-based work environment could consider a certain degree of pay compression. Pay compression in this case would make equity more relevant in close comparisons. It can also help boost morale and worker efficiency but may lead to high productive workers leaving to join a competitor organization with a higher wage or salary. It also helps insure employees during uncertain outcomes, such as bad market conditions. However, this leaves employees vulnerable to moral hazard problems and they may put less effort into their work. Working alongside the Tournament Theory, employees may improve their image not only by making themselves look better, but also by making their rivals look worse. Having pay being based on relative performance may cause some issues within the workplace. Co-workers will be less likely to cooperate with each other knowing that there is an opportunity to outshine each other. Pay compression can help in this case by closing the salary gap between job levels. Which in turn gives less incentive for employees to sabotage their co-workers. Hedonic Model of Compensation The Hedonic Model is a revealed preference method used to estimate the demand or value of a good to a consumer. In the case of Personnel Economics, the model is used to estimate the value of compensation for a worker. Employees care more than just their wage or salary; they care for things outside of money. Such as: Flexible work hours Comfortable and enjoyable working environment Health insurance and pension benefits Recognition and mentoring from bosses Preferences show that older workers tend to favor health insurance or pension benefits than younger workers. The Hedonic Model of Compensation helps firms to solve the balance between costs and benefits, with the goal to offer the best mixed package of pay and benefits to entice workers. The final package is determined by the preferences of the employees, the cost structure of the firm, and the desire to hire employees. The Hedonic Model has several predictions: There is a negative trade-off between wages and “positive” job attributes. Each firm offers the benefits that attracts their most valued type of worker. These benefits are costly for a firm, but they are also helpful by boosting productivity. Human Resource Practices in Personnel Economics The human resource practices that firms adopt have been changing to allow for more incentive pay and with a bigger