A flexible employee recruitment and compensation model: A bi-level optimization approach

The growing practice of flexible work following the COVID-19 pandemic is likely to have a significant impact on management and human resource (HR) practices. In this paper, we propose a novel bi-level mathematical programming model that can serve as a decision support tool for firms in real-life settings to improve recruitment and compensation decisions associated with hybrid and flexible work plans. The proposed model is composed of two levels: the first level reflects the company’s goal of maximizing profitability by offering competitive salaries to candidates. The second level reflects the candidate’s goal of minimizing the gap between their desired salary and the perceived benefits of a preferred flexible plan. We show that the model provides an exact solution based on a mixed integer formulation and present a computational analysis based on changing candidate behaviors in response to the firm’s strategy, thus demonstrate how the problem’s parameters influence the decision policy. Our proposed model leads to efficient managerial practices, compared to conventional models that utilize a single non-flexible plan. Results indicate that introducing a flexible work plan leads to an improvement of up to 59 percent in the firm’s profitability. We apply the optimal solution of the bi-level model to a real-world case study of a company recruiting software engineers. Results demonstrate the applicability of the optimal solution to a real-world dataset. This paper advances knowledge by proposing a novel bi-level model for effective recruitment and compensation decisions in real-world flexible workforce settings.