Working Paper Series
Do Entrenched Managers Pay Their Workers More?
Abstract: Based on a two-million-observation panel dataset that
matches public firms with detailed data on their employees, we find that
entrenched managers pay their workers more. For example, our estimates show
that CEOs with more control rights (votes) than all other blockholders
together, pay their workers about 6%, or $2,200 per year, higher wages.
Since cash flow rights ownership by the CEO and better corporate governance
are found to mitigate such behavior, we interpret the higher pay as
evidence of agency problems between shareholders and managers affecting
workers’ pay. The findings do not appear to be driven by endogeneity of
managerial ownership and are robust to a series of robustness checks. These
results are consistent with an agency model in which entrenched managers
pay high wages because they come with private benefits, such as
lower-effort wage bargaining and better CEO-employee relations, and suggest
more broadly an important link between the corporate governance of large
public firms and labor market outcomes.
Keywords: Corporate Governance; Agency Problems; Private Benefits; Matched Employer-Employee Data; Wages; (follow links to similar papers)
JEL-Codes: G32; G34; J31; J33; (follow links to similar papers)
52 pages, November 28, 2005
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