How are games developers paid?

Whilst ruminating on the issue of artists being paid for second-hand sales of books and CDs, I started to think about how games developers are paid.

As I understand it (and I am happy to be corrected if I am wrong, I really don't know that much about it), a musician or band will be contracted by a record label to produce a set number of works, and be paid an amount for that contract. They may also receive a share of royalties or gig income.

Similarly, an author will be contracted by their publisher to write a novel, or multiple novels, be paid for that contract and possible share royalties.

In both fields there will also be the small, independent artists who will carry their own publishing and management costs, and the profit they turn from sales and gigs is what they earn.

In games, there are the small independent developers who operate in much the same fashion. They design and write the games, and what they can sell is their income.

There are also the development teams maintained by the major publishers. Do they operate on a similar contract basis? Publisher X offers a development team a contract to produce a specific game. Are the developers paid direct salaries, do they receive an amount from the project coffers, do they receive a share of royalties?

This is all just idle wondering, but could it have an effect on the way games are developed? Has it had an effect on the way that books are written and music composed?