Firm performance and wages: evidence from across the corporate hierarchy

Brian Bell and John van Reenen

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Does it matter whether you work for a successful company? And if so, does it matter who you are? To answer these questions we construct a unique panel dataset covering the pay of all CEOs, senior managers and a fully representative sample of workers for a large group of publicly-listed companies covering just under 90% of the market capitalization of the UK stock market. We show that senior management appear to have pay that is strongly associated with various measures of firm performance (such as shareholder returns and quasi-rents), while workers’ pay is only weakly associated with such measures. A 10% increase in firm value is associated with an increase of 3% in CEO pay but only 0.2% in average workers’ pay. Falls in firm performance are also followed by CEO pay cuts and significantly more CEO firings. This is essentially a result of the responsiveness of flexible pay to performance and only senior executives have a large enough share of pay in bonuses to generate a sizeable overall effect on pay. External control matters for pay - firms with lower levels of institutional ownership have smaller pay-performance elasticities for CEOs and do not cut their pay when performance is poor.

JEL-codes: J30 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://eprints.lse.ac.uk/121751/ Open access version. (application/pdf)

Related works:
Working Paper: Firm Performance and Wages: Evidence from Across the Corporate Hierarchy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121751

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