Recent research has highlighted the potential costs of corruption for firms. Empirical studies that investigated the impact of corruption on business activity have shown mixed results suggesting that the environment influences this relationship. On one hand, part of these studies has shown that corruption may improve business opportunities in poor governance environments. On the other hand, several studies have shown that, in general, corruption hurts the entrepreneurial activity and may have broader negative commercial effects. The resource allocation is an essential part that allows firms to achieve specific goals associated with their performance; however, it may be affected by corruption. Thus, this study focuses on the resource allocation decisions within firms. The aim of this study is to test the effect of corruption on the allocation of resources to employees in legally registered firms of Brazil. Following the Rational Choice Theory, we assume that private firms’ employees will engage in government corruption if they perceive greater rewards than the expected utility of not engaging in corruption. Hence, corrupt firms would have to give rewards to employees engaged in corruption because they run the risk of being caught and punished. These rewards would be paid in the form of high compensations or job stability. In that sense, we argue that corruption increases the rewards paid to employees in legally registered firms. We test our assumption employing a large sample of more than 100, 000 firms located across 480 Brazilian municipalities that were audited in the period 2005-2008. The empirical strategy consists in estimating the differential effect of allocation of compensation and tenure between sectors associated and not associated with corruption, and then estimating the effect of the level of corruption in municipalities on that allocation. Results suggest that firms from sectors associated with corruption pay higher compensation to their employees than those firms from sectors not associated with corruption. These results are specific to employees with compensation above the median compensation of employees in their firms. In addition, firms operating in more corrupt municipalities tend to allocate more compensation than those operating in less corrupt municipalities.