Ethier batted .305 with 20 homers and 77 RBIs last year. He had asked for $3.75 million when exchanging proposed arbitration figures and the team had offered $2.65 million.
The 26-year-old outfielder can earn $100,000 in performance bonuses -- $25,000 for 596 plate appearances, his total last year; $25,000 for 625 and $50,000 for 650.
Ethier said both sides were in the same room waiting to begin the hearing when the deal was struck.
"We were all ready to go, sitting there staring at each other waiting for someone to flinch, and I think everyone started flinching then," he said. "Both sides knew resolve was the best. There was a lot to be lost on either side of the results.
"It takes compromise. Is it worth going to [the hearing] and making the case go through for $100,000 either way and causing some animosity between each other? I don't think so."
Ethier was relieved it was finished.
"It was a little annoying and I guess frustrating for the fact that I think things could have been resolved a little bit earlier," he said. "But I guess sometimes it takes putting on those suits and calling each other's bluff and stepping in that room and seeing if something could be done at the last minute."
Dodgers general manager Ned Colletti said compromising became easier for both sides as time for the hearing neared, and at the end, "Neither side was tremendously happy with it -- the earmark of a successful agreement."
Ethier said he was pleased with the deal.
"We found a creative way to reach the midpoint and make the bonuses attainable and make it a win-win for both sides," he said.