We now move to the bargaining in stage 2 between the incumbent and the employee over the size of the wage bonus that the incumbent pays to the employee if the latter does not create a start-up. If this bargaining results in disagreement, the employee leaves the firm. In this case, the firm's profit is: πFs(K) whereas the employee's payoff is given by α 2−α ðπsE ðKÞ−CðKÞÞ .
Therefore, the joint surplus in the bargaining between the firm and the employee is larger than the sum of the two threat points if and only if: